Auto Monitor: Improved PV Sales, Weak Demand Constrains 2W Sales

India Ratings and Research (Ind-Ra) has published the March 2022 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 6% month-on-month (mom) decline in the domestic auto sales volumes (excluding CVs) in February 2022 was due to a fall in 2W sales owing to a weak demand and adequate inventory levels at dealerships. The fall would have been higher if not for the improvement in PVs sales owing to stable production volumes and a healthy demand. Production volumes fell 20% year-on-year (yoy) in February 2022, although it was limited to 4% mom. Export performance were better than domestic sales at up 5% yoy.

The PV domestic sales recorded a third month of consecutive sequential growth, increasing 3% mom in February 2022, supported by improved production levels (up 1% mom), as the semi-conductor chip availability eased somewhat coupled with a healthy consumer demand. Sales growth in the UV segment (up 3% mom, up 5% yoy) continues to outstrip that in passenger cars (up 5% mom, down 14% yoy) with evolving consumer preferences, and has also been catered to by original equipment manufacturers (OEMs) through new model launches in the past year. Furthermore, amid the shortage of semi-conductors, OEMs continue to prioritise production of higher-margin UVs over passenger cars.

Dealership inventory moderately increased to 12-15 days in February 2022 (January 2022: 8-10 days) due to a drop-in retail sales amid consumers' anticipation of new model launches by OEMs. PV export sales volume grew 45% yoy, supported by similar growth in both UVs and passenger cars due to a continued focus of OEMs towards the export market.

Post a sequential recovery reported in January 2022, domestic 2W sales volume fell 8% mom and 27% yoy in February 2022, owing to a prolonged weak consumer demand, especially from the rural markets, coupled with an anticipated increase in fuel prices which would increase running costs. Dealership inventory remained adequate at 25-27 days (Jan 2022: 25-30 days), although declined slightly, as OEMs reduced production and retail sales continued to fall.