Consumer sentiment positive in May 2023, 2Ws show gradual recovery, ET Auto

<p>Analysts also suggest that the factory dispatches during May is likely to be the best ever for PVs. </p> — Analysts also suggest that the factory dispatches during May is likely to be the best ever for PVs.

New Delhi: The second month of the fiscal year 2023-24 brings in good news for the industry as the consumer sentiment has remained positive across the segments.

According to Motilal Oswal estimates, the wholesale for passenger vehicles (PVs) and three wheelers are estimated to grow 5.5% and 32% YoY while two wheelers, commercial vehicles and tractors are likely to decline 1%, 18% and 4% YoY respectively.

Analysts also suggest that the factory dispatches during May is likely to be the best ever for PVs. There has been good booking momentum due to the marriage season and now the challenge is to sustain the bookings.

“During May, the consumer sentiment and the retail sales have been positive. Owing to the marriage season and festivities in the rural areas, we can see a year-on-year (YoY) growth in the two wheeler segment as well. This comes after a gap of about 3 months. Going forward, if the monsoons are on time and we don’t see the impact of the El Nino, the sentiment should remain positive across the country,” Manish Raj Singhania, President, Federation of Automobile Dealers Association (FADA) told ETAuto.

Experts suggest that there is sufficient inventory for lower-end PV models resulting in average dealer inventory of 4-5 weeks. There has been an initial pickup in demand for CNG vehicles after the price cap imposed by the government. Consequently, discounts for CNG models have been moderated by INR5-10,000 per unit.

Motilal Oswal estimates PV retails to decline 2-4% YoY as chip shortage continues to hurt volumes. “Our interactions indicate up to 10% hit on volumes due to chip shortages, resulting in lower inventory for high-end models and variants across OEMs.”

For the two wheeler segment, Anand Rathi report forecasts about 20% YoY growth.

Owing to healthy demand in urban areas and low base of last year, Motilal Oswal said the two wheeler segment has outperformed the overall auto sector. It estimates the retail sales to grow 3-5% YoY in May. “A sustained recovery in domestic two wheeler demand is being seen. However, despite the marriage season, rural demand has not yet witnessed a broad-based revival.”

Hero MotoCorp has the highest inventory and HMSI has the lowest as there was unavailability of key models due to production shutdown for six days and the transition to BS-VI Phase-II compliance.

Going forward, Singhania said that no major headwinds are expected. If the monsoon is good and spread evenly across the country, we can continue to have good demand. However, while the market has already topped up and PVs and tractors have achieved a new high, some slowness is expected.

After the recent announcement of reduction in electric two wheeler subsidy cap to 15% (from 40% earlier), experts suggest some moderation in the demand. This has impacted the cost of e-2Ws by INR25-40,000 per unit, resulting in higher payback period of 1.5-2.0 years.

Motilal Oswal expects MHCV retails to decline 4-6% YoY due to the pre-buying effect before OBD-II transition in March 2023 and the impact of seasonality. On the other hand, bus demand continues to improve as retails are expected to grow by mid-single digit sequentially.

However, fleet availability remains healthy led by demand from infra-led activities, auto carriers and FMCG. This has consequently resulted in a healthy fleet utilization level between 75% and 78%.

The tractor retails for May 2023 are expected to grow marginally by 1-3% YoY. States such as MP, UP, Rajasthan and Haryana have been benefited due to better realization for crops such as wheat (15-20% higher than the average), barley and mustard. Demand from the non-agri segment has improved as sales declined just 8-10% YoY as against 15-20% YoY decline in H2 FY23), said Motilal Oswal.

While the enquiry levels are slowing down in agri segment, we expect marginal growth should continue to be led by subsidies announced by several states before elections such as – Chhattisgarh (40-50% subsidy on tractors/implements), MP (interest waiver scheme), Rajasthan (free tractors and implements to limited farmers), etc.

Tractor volumes are likely to see a small fall, down by about 4% YoY), said Anand Rathi.