Automobile sector: Picking up speed

Volumes have been reasonably strong in June implying a better outlook for the rest of the year

In the last couple of months, it was only the market leaders in the auto space that were doing well. But the numbers for the month of June show that others companies, too, are seeing better momentum. Mahindra and Mahindra(M&M), for instance, has done brisk business in utility vehicles — up 40 per cent sequentially — driven by the Xylo, while the growth in tractors was a strong 41 per cent. Tata Motors posted better sequential volumes for heavy, medium and light commercial vehicles indicating that more goods are being transported.

In fact, the LCV segment actually grew a strong 16 per cent year-on-year. Maruti Suzuki’s volumes are up 9.5 per cent year-on-year (a month-on-month comparison is not possible because of a shutdown at the plant). And with volumes up 24 per cent year-on-year, Hero Honda continues its good run.

Over the past few years, much of the passenger car and two wheeler sales in the country have been driven by attractive pricing — excise duty cuts have allowed manufacturers to offer buyers a good deal. Since the economy, too, was on an upswing, it didn’t take too much to convince aspiring consumers to walk into showrooms. However, affordability today is somewhat lower, given the downturn and moreover, it’s unlikely that product prices can be brought down unless there are big cuts in excise duties.The impact of the last cut in December last year is still being felt and so the automobile industry this year should grow by at least 7-8 per cent.

But beyond that the economy would need to be in better shape for consumers to be comfortable with making big-ticket purchases. Nevertheless, Maruti’s performance indicates that there is demand and it could well turn in double-digit volume growth this year given that it is extending its reach in the rural markets. Its strong presence in the entry segment will help it gainover competitors. Hero Honda, too, will continue to leverage its rural reach and should post double digit growth.

However, truck makers Tata Motors and Ashok Leyland are yet to see a strong rebound in their segments. The BSE auto index has outperformed the market by a fairly wide margin since January, gaining 83 per cent to the Sensex’s 51 per cent. Hero Honda has gained 70 per cent, while M&M has risen 161 per cent and Maruti 92 per cent.