It’s been a good month for passenger vehicle sales as manufacturers look to re-stock inventory channels in anticipation of pick-up in festive season sales. In fact, industry leader Maruti’s growth was even marginally ahead of the Street’s estimates. While the demand is coming back on the need for personal mobility, the long-term demand trends still remain in question.
Nevertheless, Maruti’s 21% year-on-year (y-o-y) jump is encouraging partly driven by higher sales of compact and small cars. Mahindra and Mahindra did not quite see sales pick-up as the growth in SUVs have been on the slow lane. Of course, the growth is on a lower base as last year manufacturers had slowed production and sales in an effort to clear old inventory before the new BS-VI norms were in.
“Auto numbers were better than expected across segments. Since unlock 3.0, urban recovery is also now playing out. Channel inventory levels had fallen to very low levels earlier, and some channel re-stocking has also been happening. An additional 10% volume increase is because of inventory restocking. Retail demand is also picking up,” said Mitul Shah, vice president, Reliance Securities.
Analysts are looking at better festive season numbers this time as manufacturers are also expected to announce discounts to boost sales. Analysts are also saying that the demand for personal mobility is also seeing an increase in sales from rural areas, which were quite low during the last three years. Besides, manufacturers are also slowly ramping up production as capacity utilisation levels fell due to supply chain disruption in auto components etc.
But people are still sceptical whether the demand will sustain post the festive season. Cost of ownership of cars has increased post the implementation of BS-VI, while income levels are said to be reducing. Still, the downtrading seen in the increase in sales of cars in the lower end may just see the auto industry sale through a tough FY21.
Shares of auto companies have been stepping on the gas in the past several months. Both Maruti Suzuki and Mahindra and Mahindra are trading close to their 52-week highs in hopes that a pick-up next year could drive operating leverage and improved margins on a lower base. Shares of Maruti increased by 1%, while Mahindra and Mahindra was largely unmoved.