India Ratings and Research (Ind-Ra) has published the June 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.
Ind-Ra believes the 193% sequential and 15% yoy increase in the domestic auto sales volumes in June 2021 was led by the relaxation of localised lockdowns in most parts of the country leading to the reopening of automotive dealerships and the resumption of operations by original equipment manufacturers (OEMs) along with a lower base in previous periods. However, the June 2021 volumes remained much below historical peaks (35% below June 2019 levels).
The PV segment resumed its outperformance compared to the industry on account of increasing preference for personal mobility by 119% yoy. Consumer demand for the 2W segment remained tepid, at up 4% yoy. While motorcycle sales increased by 10% yoy, and scooters sales fell by 10% yoy. 2Ws has been more impacted by the increased cost of ownership amid price hikes by OEMs coupled with historically high fuel prices in India and workplace and colleges remaining closed. 3Ws continued to drag with a 9% yoy decline due to reduced preference for shared mobility. The growth trend in exports volumes resumed in June, after being disrupted by the second covid wave in May, as export volumes increased 82% yoy.
On a quarterly basis, the domestic sales for the industry increased by 116% yoy while it declined by 43% sequentially. The recovery momentum in CV demand was hampered by the second wave, resulting in a 50% decline in domestic CV wholesale volumes in 1QFY22 on a sequential basis, though were significantly up by 2.3x on a yoy basis mainly due to the lower base.
Moreover, CV sales are seasonally lower in 1H than in 2H. Medium and heavy goods carriers grew by 5.7x yoy and light goods carriers’ sales volume was up 174% yoy in June 2021. Ind-Ra also expects a CV demand revival in 2HFY22 with a pick-up in economic activities as the infrastructure sector revives.The total production in June 2021 improved by 110% on a monthly basis as OEMs resumed operations at their plants after taking 10-15 days of shutdown in May 2021.
Retail sales also recovered in June 2021 -with PV and 2W volumes increasing 43% and 17% yoy, respectively, due to the reopening of automotive dealerships. Inventory at the dealership levels for PVs increased to 30-35 days in June 2021 (May 2021: 20-25 days April 2021: 15-17 days).
Ind-Ra believes that the increase was due to OEMs replenishing inventory with dealers in anticipation of a pent-up demand and supply chain issues on account of a shortage of semiconductors. Inventory at 2W dealerships declined to 20-25 days in June 2021 (May 2021: 25-30 days; April 2021: 30-35 days).
In line with Ind-Ra's expectations, the industry witnessed healthy growth on a sequential basis in June. Ind-Ra expects the recovery in sales volumes to continue in July 2021, driven by the lockdown restriction being lifted in some more parts of the country and a steady decline in daily new covid cases.
