India Ratings and Research (Ind-Ra) has published the February 2021 edition of its credit news digest on India's auto sector. The report highlights the trends in the sub-segments of the auto sector, including passenger vehicles (PVs), commercial vehicles (CVs) and two/three-wheelers (2W/3Ws), with a focus on sales volumes growth, market share movement, change in commodity prices and recent rating actions.
The domestic automobile industry's sales volumes (excluding CVs) grew 10% yoy in February 2021, recording positive growth for the seventh consecutive month. PV and 2W sales volumes were up 18% and 10% yoy, respectively, in February 2021. Segments such as 3Ws and CVs are still catching up. However, Ind-Ra opines steady growth of PVs and 2Ws over December 2020 to February 2021 - after the festive season ended in November 2020 - despite the price hikes taken by original equipment manufacturers (OEMs) suggests a sustainable demand recovery for the sector amid improving macroeconomic fundamentals. Exports volumes also continued the growth trend in February 2021, up 9% yoy, mainly led by 17% yoy growth in 2W exports.
PVs continue to lead the domestic revival, benefitting from the increased consumer preference for personal mobility. Additionally, the domestic PV market continues to see an increasing shift towards utility vehicles (UVs). A sustained high demand for UVs, sales volume up 45% yoy in February 2021, translated into 2% yoy growth in UV sales volume during 11MFY21. Passenger cars also continued to see positive growth in February 2021, led by 8% yoy growth in the sales volume of compact cars. 2Ws, albeit growing 10% yoy in February 2021, are impacted more by the increased cost of ownership amid price hikes by OEMs coupled with historically high fuel prices in India. This is apparent in the 3% yoy decline in sales volume of the more price-sensitive entry-level motorcycles under 110cc. Overall, motorcycles and scooters sales grew 11% and 10% yoy, respectively in February 2021.
The total production (excluding CVs) increased 15% yoy led by a 13% and 17% yoy increase in the production levels of PVs and 2Ws, respectively, in February 2021, despite the ongoing global semi-conductor shortage. 3W production was at 85% of the previous year’s level amid a lower demand for passenger carrier 3Ws. PV production had declined 2% yoy in January 2021, raising concerns that supply-side constraints could play a spoilsport, despite a continuously strong demand for PVs in the recent months. However, 6% growth in PV production level in February 2021 over January 2021 helps alleviate some of that concern. The 2W industry seems less impacted by any potential supply side issues. OEMs have reported back-to-back double-digit sales growth in 2W production in January-February 2021. Inventory at the dealership levels for both PVs and 2Ws remained steady at 10-15 days and 30-35 days, respectively at end-February 2021.
Retail sales in February 2021 were a mixed bag - PVs grew 11% yoy but 2Ws and CVs declined 16% and 30% yoy. Although retail sales have, for the most part, lagged behind wholesale dispatches in 11MFY21, a sustained uptick in demand across most segments over December 2020-February 2021 suggests that consumer sentiments are improving. While concerns over the near-term supply-side constraints remain, barring a major global crisis, the domestic auto industry’s demand revival is likely to continue into FY22.
