Teji Mandi: For automakers, sentiments improve as buyers return to showrooms

Vehicle demand went through several structural changes over the last few years. Economic slowdown before the pandemic kept the sentiments down around new purchases. BS-VI transition and increased insurance premiums added to the pricing pressure on automakers. Then, there was a growing preference for mass transport.

The industry hit a new low during the Covid led lockdown with zero sales in April. But, the sentiments have improved considerably since then and buyers are returning to showrooms. The pick up in demand post-September has managed to sustain. And, December sales figures suggest continued buoyancy.

Commentary turning positive:

The passenger vehicle industry reported double-digit domestic volume growth in December. While the tractor segment continues to remain buoyant. The passenger vehicle and Two-wheeler sales have also revived. Given the strong trend, even the commentary of the OEMs is also turning positive.

Reacting to the December numbers, Tata Motors said that it is witnessing sustained demand. The company is further looking to increase its output to meet the increased demand.

In Q3FY21, Tata Motors' PV business posted a growth of 89% as against the same quarter last year. It is the highest ever sales in the last 33 quarters. The company also posted impressive sales in the electronic vehicle segment. The EVs registered the highest ever quarter with wholesale of 1,253 units.

Q3FY21 brought a new milestone for Bajaj Auto as well. It became the first two-wheeler company in the world to cross a market capitalization of Rs 1 lakh crore. The company is now the most valuable two-wheeler brand globally.

Bajaj Auto's December volume grew at 11% YoY while export numbers came in at a record high. The company managed to achieve this despite the severe shortage of containers. Rakesh Sharma, Executive Director at Bajaj Auto suggested that without that issue, the exports could have been 20% higher than the current level.

Bajaj Auto is also in a sweet spot to benefit from the shifting consumer preference towards premium biking products. Bajaj has recently joined hands with Triumph Motorcycles to develop premium motorcycles. It has also partnered with KTM and Husqvarna. And, its premium biking portfolio boasts Pulsar range, Avenger and Dominar.

Royal Enfield sales have further confirmed the growing tilt towards the premium segment. RE's volume increased by 37% YoY in December 2020. Among the other two-wheelers, Hero Moto’s volumes increased by 5% YoY. And, TVS Motors' total volumes increased by 18% YoY in December.

Tractors and Farm Equipment is another segment that continues to do exceedingly well. While M&M's tractor volumes were by 25% YoY in December 2020, Escorts reported 88% jump from last year’s numbers.

The future outlook appears equally bright for this segment. Hemant Sikka, President of M&M's Farm Equipment Sector is expecting 15% growth for the tractor industry in FY21. Tractor major Escorts has also projected similar growth for the industry.

Bharat Mandan, the CFO at Escorts expects to deliver double-digit growth for at least the next six months. The company is also banking on the strong order book from the export market.

"Even today we have got an order book of over 1,000 tractors. Next three-five years, this could be one good growth engine for us." He quoted in an interview.

New growth opportunities:

The recently announced production-linked incentive (PLI) scheme for the automotive sector is a major needle mover in favor of the industry.

It will open up the export market to a great extent for the Indian manufacturers. Indian automobile production in November stood at ~23 lakhs units. Out of these, ~19 lakh vehicles were sold domestically and around 4,00,000 were exported.

Challenges to stay relevant:

The demand is looking up for the auto industry after a long time. At the same time, long term challenges are also rising.

There is a clear shift towards premiumization in the auto industry. Several global car and bike manufacturers are investing in the Indian market to capture that. There is a clear challenge for Indian OEMs to match their superior product quality.

The electronic vehicle segment is also seen as a long-term future of the industry. The EV segment is at a nascent stage but the industry will eventually move towards it. EVs come with their fair share of challenges and a lot of work remains uncompleted on this front.

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