Contrasting auto sales numbers confounding

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We are having contrasting insights from the car market. In April, sales of passenger vehicles increased 13%, while actual registration of vehicles, that is retail sales, went up by just 3.5%. There are various factors that have dented the sentiment and impacting retail sales. Demand in rural areas was low, then there was non-seasonal rain and pre-buying. All this led to lower sales at retail level in the month of April.

During April, total PV whole sales were 3.31 lakh vehicles while retail sales came at just 2.86 lakh units. Major auto company of the country Maruti reported that there was 10.5% increase in wholesales. However since this is not getting translated into sales to customers, inventory with dealers has increased to 2.51 lakh units. In April, the prices of vehicles have increased as companies are transitioning towards BS6 and there are also issues with raw material prices.

Nomura has reported that enquiry and footfalls especially for the small car segment has softened. There are issues with supply also as semi-conductor problem still persists. Maruti stated that it is looking to diversify its supply chain.

Coming ahead there are issues like El-nino, slow economic growth but on the other side festive season is beginning next month which in turn can boost retail sales. Good wholesale numbers in April also indicate this.

On negative side, the economy is not doing great, rural demand is yet to recover and pent-up demand has faded. At the same time, it seems, inflation and interest rates appear to have peaked. However, common folks (consumers) realise such changes with a lag. So till then, auto companies may face some tough times

Earnings results of companies like Maruti, and Bajaj Auto depicted softness volumes. Maruti has a good order book which will provide revenue visibility going ahead and for Bajaj Auto recovery in rural demand is a major factor. Still, brokerages have given a buy rating on Maruti but few of them have revised down target price.