Automakers have got off to a good start to FY23. True, the base is favorable as April 2021 was hit by a second wave of Covid and hence, volumes increased year-on-year (YoY). Still, the segments are poised for recovery.
The sentiment in the rural market improved on rising wheat exports amid geopolitical tensions. Also good progress has been made in Rabi harvesting. This bodes well for the tractor segment which is better than expectations. Mahindra & Mahindra Ltd. (M&M) and Escorts Ltd. registered a growth of 49% and 19% respectively in tractor volume. The outlook looks strong with better crop yields and expectations of a normal monsoon, which bodes well for the upcoming Kharif season.
Semiconductor shortage in the passenger vehicle (PV) segment affected performance to some extent. Maruti Suzuki India Ltd. reported a 5.7% year-on-year and 11.6% sequential decline in April volumes. Management expects the semiconductor shortage to have a slight impact on FY23 production. Tata Motors Limited has registered 65 per cent YoY growth in its PV business. However, volumes declined by 2% on a sequential basis.
“PV demand remains skewed towards new launches/electric vehicles/compressed natural gas vehicles/sports utility vehicles, while entry-segment cars remain weak. In a report on May 3, analysts at Nomura Financial Advisory and Securities (India) said inflation and further rise in oil prices remain headwinds for FY23.
The Commercial Vehicle (CV) segment, which is witnessing a strong cyclical uptrend, also saw a year-on-year increase in volumes. Tata Motors’ CV business and Ashok Leyland Ltd. reported 87 per cent and 42 per cent year-on-year growth in volumes, respectively. But sequentially, volumes declined by 34.5% and 41%, respectively. Analysts Reliance Securities note that, traditionally, CVs decrease sequentially in April.
In two wheelers (2W), Hero MotoCorp Ltd, TVS Motor Co Ltd and Eicher Motors Ltd (Royal Enfield) registered a growth of 12%, 24% and 17% respectively in sales, while Bajaj Auto Ltd’s 2W volumes fell 19% year-on-year in April as it continues to face chip shortages.
However, on a sequential basis, volumes of Hero, TVS and Royal Enfield declined by 7%, 4% and 8%, respectively. But Bajaj Auto’s volumes grew by 10%, reflecting chip shortage conditions. Also, demand is expected to improve in view of the ongoing wedding season, improving rural demand and reopening of schools, colleges and offices.
Meanwhile, electric 2W penetration fell from 3.8% in April to 4.3% in March, as automakers faced supply crunch, note analysts at Nomura. Moreover, the recent incidents of fires in electric vehicles have hit the demand.
“Channel checks reveal that the overall sales performance started improving in April 22 due to the positivity during the festival. We expect volume pressure to continue over the next 1-2 months, while increasing in Q2FY23 with potentially healthy agricultural production on the onset of festivals and better pricing (crop prices increased by 10-20% above MSP) due to exports (recent demand),” analysts at Reliance Securities said in a report on May 2.