PV sales drop in July amid softening demand: Will the slowdown persist?

Indian passenger vehicle manufacturers have reported weaker wholesale figures for July as demand continues to cool off.

The Society of Indian Automobile Manufacturers (SIAM) had earlier forecasted PV growth for FY25 to be below 5%, citing increased competition and excess supply as major challenges. Although Q1 2024 saw record-breaking sales, surpassing 1 million units for the first time, the growth rate was only 3%.

Sales for FY24 exceeded 4 million units, with an 8.6% increase; however, these growth rates have now reverted to pre-COVID levels. In FY22 and FY23, PV wholesale volumes enjoyed significant double-digit growth of 13.2% and 26.7%, respectively, driven by pent-up demand from the pandemic period and an increase in urban consumers upgrading to larger vehicles like SUVs.

In July, rating agency ICRA reported that inventory levels at PV dealerships had risen to 62–67 days, compared to the usual 30–35 days, as of June 2024. To manage stock, manufacturers offered substantial discounts towards the end of Q1, with Mahindra and Mahindra and Tata Motors providing up to ₹2 lakh off on their popular models.

Looking at the July wholesales, Maruti Suzuki India reported a 9.64% decline in domestic passenger vehicle sales, totaling 137,463 units compared to 152,126 units in the same month last year.

For the first time after many months, Maruti Suzuki India Limited's SUV segment has experienced a decline of 9.3%. This is coupled with continued poor performance in the compact segment, which is down by 12.3%.

Hyundai Motor India saw a 3% decrease in domestic dispatches, falling to 49,013 units from 50,701 units year-over-year. Tata Motors experienced an 11% drop in domestic sales, with 70,161 units sold compared to 78,844 units in the same month last year.

In contrast, Toyota India achieved a notable 44% increase in sales for July 2024. Mahindra & Mahindra, which has a strong presence in the SUV market, reported a 15% increase in dealer sales in July. Despite this, it was still the slowest growth rate for the financial year.

Kia India’s domestic sales increased by 2.5% to 20,507 units from 20,002 units in July 2023. Honda Cars India, however, saw a 5% decline in sales, with a total of 4,624 vehicles sold.

Cautiously positive

Domestic brokerage firm LKP Securities maintains a cautiously positive outlook on the auto sector, with a stock-specific approach. It favors Mahindra & Mahindra (M&M) due to its strong presence in the growing SUV segment, prudent capital allocation, and robust growth strategy in UVs, EVs, and CVs. The tractor segment could benefit from favorable monsoon conditions.

However, concerns are noted for Maruti Suzuki India Limited (MSIL), particularly regarding the slowdown in the passenger vehicle (PV) industry, underperformance in its small car segment, and heavy reliance on SUVs.

Tata Motors is viewed positively by the brokerage due to its strength in Jaguar Land Rover (JLR) and leadership in the domestic EV market. Nonetheless, uncertainties surrounding JLR and the commercial vehicle (CV) cycle pose potential risks.

Ashok Leyland is favored within the CV sector for its diversified revenue base, including light commercial vehicles (LCVs), defence, medium and heavy commercial vehicles (MHCVs), exports, and spares. The brokerage remains cautious on CVs, noting the need to monitor growth prospects closely due to the tapering off of the CV cycle.

Overall, LKP Securities expects the Indian auto sector to be in a consolidation phase in FY25, given the high base of the previous year.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.