Auto volumes to remain weak in first half of FY15

Passenger vehicle sales might pick up in second half, if excise duty cuts continue and sentiment improves

Automobile volumes might not grow in double digits in FY15 even if a stable government comes to power after May 16. The sector typically grows at 1.5 times of the gross domestic product (GDP), which means vehicle sales will remain muted till economic growth picks up from the sub-five per cent levels. Two-wheeler sales are also expected to slow from June onwards, as the wedding season ends.

Two-wheeler makers reported double-digit volume growth for April, both on year-on-year (y-o-y) and month-on-month (m-o-m) basis. Hero MotoCorp’s volumes grew 14.4 per cent y-o-y and nine per cent m-o-m to 571,054 units. While Bajaj Auto reported a 3.7 per cent y-o-y decline in volumes to 331,529 units, on m-o-m basis, volumes were up nine per cent. TVS Motor’s volumes rose 15 per cent y-o-y but declined three per cent m-o-m at 190,683 units. Surjit Arora of Prabhudas Lilladher says two-wheeler volumes have spiked thanks to an extended marriage season and volumes might fall after the season ends. Arora expects a seven to eight per cent growth in FY15.

The passenger vehicle segment continues to be on a sticky wicket. The cut in excise duty and increased enquiries are not converting into sales. According to Karvy Stock Broking, in the four-wheeler segment, Mahindra & Mahindra’s auto volume declined for an eighth consecutive month, with a fall of 12.4 per cent y-o-y and 29.8 per cent m-o-m to 36,274 units. Tractor volumes fell 10.6 per cent y-o-y but grew 17.3 per cent m-o-m to 20,731 units in April 2014. Maruti Suzuki’s volumes dropped 11.4 per cent y-o-y and 24 per cent m-o-m to 86,232 units. Sales of commercial vehicles also continued fall sharply in April, both on m-o-m and y-o-y basis. Ashok Leyland’s volume fell 21 per cent y-o-y and 43 per cent m-o-m to 5,897 units in April, while Tata Motors saw a decline of 34 per cent y-o-y and 34 per cent m-o-m to 33,892 units.

The outlook would remain tepid for commercial vehicles in FY15. Any uptick in commercial vehicle sales can only happen in FY16. Analysts expect passenger car vehicles in FY15 to pick up in the second half, if excise duty cuts are extended beyond June. Also, companies looking at launching new models might see better volume growth than others. Prabhudas Lilladher’s Arora expects passenger vehicles to grow six-seven per cent in FY15, but most of the growth will be back-ended. Frost & Sullivan expects domestic automobile sales to grow 9.5 per cent in FY15, even though domestic sales of the passenger vehicle segment declined by six per cent, CV segment by 25.3 per cent, three-wheelers by 10.9 per cent in FY14.