BQ Survey | Inventory Falls As Festive Season Discounts Lift Retail Auto Sales In October

Demand mainly picked up from the second half of Navratri, or the nine days leading to Dussehra, considered auspicious for buying, the survey of nine large dealerships across India revealed.

“The third quarter, which is the best quarter for the industry, has started on a positive note,” said Nikunj Sanghi, managing director at JS Fourwheel Motors Pvt. Ltd., a dealer of Hero MotoCorp Ltd. “October has seen record retail auto sales for the industry. An early Diwali compared to last year and attractive discounting have boosted sales. Demand has been fairly robust across OEMs (original equipment manufacturers) and product categories.”

A better-than-expected demand eased the inventory at dealerships. Also, stock of Hero Splendor, Mahindra Bolero and select Royal Enfield motorcycles ran out in west and north India, according to brokerages, including SBI Capital Markets and Prabhudas Lilladher Pvt. Ltd.

“Two-wheeler and passenger vehicle inventory have eased considerably, aided by the strong festive demand and steps taken by OEMs,” said Vinkesh Gulati, director at United Automobiles, a dealer of Mahindra & Mahindra Ltd. “Most dealers are holding a stock of less than 30 days and this would aid in the transition from BS-IV to BS-VI.”

Yet, it may be too early to call it a recovery as India’s automakers are grappling with the worst auto slowdown in two decades, forcing them to layoff contract workers and shut showrooms. Passenger vehicle wholesales declined for the eleventh straight month in September, according to the latest auto sales data available with the industry body Society of Indian Automobile Manufacturers. That’s despite the government lifting car-buying freeze on its departments, providing clarity on vehicles complying with older emission standards and not increasing one-time registration fee.

And auto dealers usually don’t offer discounts during the festival season as demand is high. This year's festive season sales were largely driven by aggressive schemes, one dealer told BloombergQuint on the condition of anonymity. Without a meaningful improvement in consumer sentiment, there’s a sense of uncertainty going forward over the sustainability of demand, the person said.

That’s expected to reflect in factory-gate sales.

Wholesales Likely To Fall

Wholesales, or factory dispatches, are expected to fall in October as dealers had stocked ahead of the festive season, according to BloombergQuint’s poll of four brokerages.

Still, higher retail sales are expected to aid volumes of at least some companies.

“Festive season retail sales are up by mid-single digit in passenger vehicles, which also benefited from a sharp jump in discounts,” said Kapil Singh, executive director and auto analyst at Nomura. “For the two-wheelers, retail sales have seen low single-digit growth.”

Passenger vehicle volumes are expected to grow 3 percent year-on-year in October and fall 12 percent for two-wheelers, Nomura said. The brokerage also expects wholesales of commercial vehicles to tumble 49 percent over the last year amid an economic slowdown.

Raghunandhan NL, auto analyst at Emkay Global Financial Services Ltd., said, “Our channel checks indicate that retails witnessed growth in the festive season for passenger vehicles, two-wheelers and tractors. But wholesales are expected to decline in two-wheelers due to inventory correction.”

Here are the factors, as per Nomura, Emkay and SBI Caps, that could impact wholesale volumes for individual automakers:

Ashok Leyland

• Weak demand and inventory de-stocking prior to the rollout of the new emission standards to keep wholesales subdued.

Bajaj Auto

• Domestic wholesales to remain weak on inventory de-stocking; Export of two-wheelers to sustain growth.

Eicher Motors-Royal Enfield

• Lower priced variants, new stores to support volumes.
• Stocks ran out at dealerships in west and north India.

Hero MotoCorp

• Wholesales to remain slow on inventory de-stocking.
• Hero Splendor stocked out in a few regions.

Maruti Suzuki India

• Healthy festive retails to benefit wholesales.
• Promotions and discounts push retail sales higher.

Mahindra & Mahindra

• Weak demand and high competition to impact utility vehicles; tractor volumes may remain flattish.

Tata Motors

• Commercial vehicle sales continue to remain weak.

TVS Motor

• Inventory de-stocking to impact domestic wholesales.
• Export market expected to witness more than 20 percent growth in October.