Domestic Volume Growth Trends in September 2016 –
- Passenger Vehicle volumes grew by 19.9% in September 2016 on YoY basis
- Commercial Vehicles volumes declined by 1.9% in September 2016 on YoY basis
- Two-Wheeler volumes grew by 21.6% in September 2016 on YoY basis
- Three-Wheeler volumes grew by 4.9% in September 2016 on YoY basis
- Tractor volumes grew by 49.4% in September 2016 on YoY basis
Passenger Vehicles: Festive cheers for PV industry, with MSIL leading the pack
Domestic Passenger Vehicle (PV) industry registered robust 19.9% growth during Sep-16, in the backdrop of strong double digit growth across all sub-segments with UV segment leading the pack with 37.9%. The stellar growth was primarily driven by MSIL, which grew by 29.4% as compared to 11.9% growth in all other players combined. Considering, major festivals like Navratri, Dussehra and Diwali are falling in Oct-16, wholesale push ahead of festive season drove Sep-16 volume to record high. Overall, growth remain strong driven by improved customer sentiments, expected improvement in farm income post above average monsoon (as other rural dependents segments like 2W and tractor also witnessed robust growth) and 7th pay commission benefits. While MSIL remain undisputed leader in car and van segment, it is gradually closing the gap between M&M and itself in UV segment.
Considering launch of Ignis in near term, there is possibility of MSIL emerging as leader in UV segment as well. Export volume grew by strong 24% in Sep-16 in the backdrop of strong growth by GM as well as Hyundai. Overall during H1 FY17, PV exports grew by 15.4% – thanks to 58.9% growth in UV exports whereas car exports remain modest at 6.9%.
Exhibit: Segmental volume breakup of domestic passenger vehicle industry
| Industry Volumes | FY 2014 | FY 2015 | FY 2016 | H1 FY2016 | H1 FY2017 | Sep-15 | Sep-16 |
| Passenger Cars | 17,86,899 | 18,77,706 | 20,25,479 | 9,76,586 | 10,26,526 | 1,69,590 | 1,95,259 |
| Utility Vehicles | 5,24,392 | 5,52,135 | 5,86,664 | 2,66,339 | 3,73,504 | 48,467 | 66,851 |
| MPVs | 1,90,844 | 1,71,395 | 1,77,535 | 86,949 | 94,009 | 14,113 | 16,318 |
| Total | 25,02,135 | 26,01,236 | 27,89,678 | 13,29,874 | 14,94,039 | 2,32,170 | 2,78,428 |
| Growth (%) – YoY | |||||||
| Passenger Cars | -4.7% | 5.0% | 7.9% | 9.7% | 5.1% | 9.5% | 15.1% |
| Utility Vehicles | -4.9% | 5.3% | 6.3% | -2.5% | 40.2% | -8.6% | 37.9% |
| MPVs | -19.6% | -10.2% | 3.6% | -1.5% | 8.1% | -10.0% | 15.6% |
| Total | -6.0% | 3.9% | 7.2% | 6.2% | 12.3% | 3.8% | 19.9% |
Source: SIAM Data, ICRA’s Estimates
Outlook: Domestic PV sales outlook revised upwards to 10-12% in FY2017e
ICRA has recently revised its domestic PV growth outlook to 10%-12% for FY2017e, as compared to 8.5%-9.5% earlier in the backdrop of improved customer sentiments post 7th pay commission implementation, normal monsoon after consecutive years of deficient rainfall and expected pickup in economic activity. The industry’s profitability metrics are unlikely to see much improvement in the near term despite improved prospects of sales volume growth in view of (a) need for recurring expenses towards new product development, (b) increase in fixed costs including employee costs, (c) likely sustenance of discounts-led sales push, and (d) restricted pricing power in the wake of intense competition. The PV industry is expected to sustain volume CAGR of 9-10% (domestic + exports) over the medium term. Market share in the domestic PV industry still remains concentrated in the hands of few players, reflected in the fact that top four players account about 80% of industry volumes. This implies that profitability pressures on the relatively low volume players may be even higher resulting in sustained external financing dependence to fund losses and capital expenditure requirements. However, OEMs are focusing on exports volume to optimally utilize their Indian operations and improve profitability.
Two Wheelers: Strong double digit monthly growth reported across two-wheeler segments as festive season approaches
The two-wheeler volume growth continued to report strong growth trajectory in September with domestic volumes growing by 21.6% YoY. Positive sentiments from rural customers following better monsoons than previous two fiscals, payouts from seventh pay commission as well as expectations of robust demand during festive season resulting in strong wholesales have driven solid volumes during September. The growth rate for scooters continued to remain strong stressing its increased popularity and benefitting from growing penetration geographically. Although motorcycle volumes remained healthy during the month with 16.3% growth in September sales, it was driven by the executive and premium segment motorcycles even as the volumes of entry segment motorcycles remained subdued, albeit on a positive growth curve. Although there were regional festive demand drivers (Onam in Kerela, Ganesh Chaturthi in Maharashtra, etc), strong demand in volumes is reflecting the stocking undertaken by retailers in anticipation of strong demand during October that benefits from concentration of festive season with Navratra’s and Diwali in same month in contrast to previous fiscal when the festive periods fell over October- November.
Hero Motocorp continues to be market leader in two wheeler industry with market share of 35.6% on strength of its popular brands Splendor, Passion, Glamour among others. With market share of 50.2% during H1FY2017, Hero MotoCorp maintains its strong leadership in the motorcycles segment. Honda has a dominant position in scooter market riding on Activa with 59% market share during H1FY2017. TVS managed to remain third largest two-wheeler company with presence across the three segments; the company’s growth during H1FY2017 was driven by strong volume growth in motorcycles segment riding on strength of new launches over last few months besides the recovery in moped volumes.
Exhibit: Trend in Domestic Two Wheeler Sales
| Industry Volumes | FY 2014 | FY 2015 | FY 2016 | Sep-15 | Sep-16 | Apr-Sep 2015 | Apr-Sep 2016 |
| Motorcycles | 10,481,115 | 10,726,014 | 10,700,439 | 1,020,237 | 1,186,770 | 5,364,331 | 6,042,877 |
| Scooters | 3,602,743 | 4,500,920 | 5,031,678 | 462,341 | 603,818 | 2,401,303 | 3,048,195 |
| Moped | 722,920 | 748,628 | 723,767 | 54,559 | 78,405 | 352,974 | 445,880 |
| Total | 14,806,778 | 15,975,562 | 16,455,884 | 1,537,137 | 1,868,993 | 8,118,608 | 9,536,952 |
| Growth (%) – YoY | |||||||
| Motorcycles | 3.9% | 2.3% | -0.2% | -2.9% | 16.3% | -4.1% | 12.6% |
| Scooters | 23.2% | 24.9% | 11.8% | 6.5% | 30.6% | 9.9% | 26.9% |
| Moped | -8.3% | 3.6% | -3.3% | -21.2% | 43.7% | -5.2% | 26.3% |
| Total | 7.3% | 7.9% | 3.0% | -1.1% | 21.6% | -0.4% | 17.5% |
Source: SIAM Data, ICRA research
Outlook
ICRA expects domestic two wheeler industry to grow at the rate of 10-12% driven by broad based growth across segments as has been the case over the past six months of the fiscal. Favourable budgetary allocations towards rural development, increased focus on creation of irrigation infrastructure and healthy precipitation on monsoon bode well for farm sentiments. With the domestic two wheeler industry having reported a growth of 17.5% during H1 FY2017, there appear signs of improving rural demand, but a steady growth trend is yet to be established. These apart, two wheeler demand would also draw support from the benefits from pay revision (implementation of recommendations of Seventh Pay Commission as well as one rank one pension). ICRA also expects the increasing penetration of organised finance into tier 2/3 cities as well as rural centres supported by favourable interest rates to support domestic demand in the near to medium term as current share of financed vehicles remains moderate. Additionally the under developed public transport system, in the backdrop of increasing road network in the past few years has steered personal mobility requirement, supporting the demand for two wheelers.
Commercial Vehicles: Decline in M&HCV (Truck) sales continued in September, while LCV (Trucks) reported strong growth
During September 2016, the domestic CV industry sales declined by 1.9% in volume terms after reporting positive growth for 22 consecutive months. The decline in CV sales was primarily on account of holding back of orders by fleet operators on account of the uncertainty related to the potential GST rate as well as high base effect (owing to pre-buying in September 2015 due to partial roll-out of BS-IV norms). Owing to expectations that vehicles prices would fall once GST is implemented, fleet operators have deferred purchase of new vehicles, which was otherwise expected to get a boost from pre-buying following the implementation of BS-IV emission norms from April 2017 onwards. In addition, the overall sluggish demand for freight and its impact on freight rates has also contributed to the slowdown. Unlike M&HCV Trucks, the LCV Trucks have however continued to register healthy growth up 12.4% in 6m FY 2017 aided by replacement demand and pick-up in consumption sectors. The current fiscal has also begun with relatively subdued trend with bus segment registering a growth of just 6.0% in 6m FY 2017.In terms of market share movement, VECV and M&M gained market share in the M&HCV (Truck) segment on back of scale-up in new models and expanding sales network. OEMs like VECV and SML Isuzu have also gained market share in the bus segment.
Exhibit 1: Trend in Domestic Commercial Vehicle Sales
| Industry Volumes | FY 2013 | FY 2014 | FY 2015 | FY 2016 | September 2015 | September 2016 |
| M&HCV Trucks | 221,776 | 161,909 | 195,918 | 258,488 | 27,490 | 20,850 |
| LCV Trucks | 476,695 | 389,434 | 337,377 | 334,371 | 28,181 | 33,086 |
| Buses | 94,740 | 81,508 | 81,653 | 92,845 | 7,174 | 7,685 |
| Total | 793,211 | 632,851 | 614,948 | 685,704 | 62,845 | 74,786 |
| Growth (%) – YoY | ||||||
| M&HCV Trucks | -25.9% | -27.0% | 21.0% | 31.9% | -24.2% | |
| LCV Trucks | 15.9% | -18.3% | -13.4% | -0.9% | 17.4% | |
| Buses | -4.1% | -14.0% | 0.2% | 13.7% | 7.1% | |
| Total | -2.0% | -20.2% | -2.8% | 11.5% | -1.9% |
Source: SIAM Data, ICRA research
Outlook
Commercial Vehicles: GST related uncertainty and sluggish industrial demand has led to revision in growth estimates for FY 2017
Owing to expectations that vehicles prices would fall once GST is implemented, fleet operators have deferred purchase of new vehicles, which was otherwise expected to get a boost from pre-buying following the implementation of BS-IV emission norms from April 2017 onwards. In addition, the overall sluggish demand for freight and its impact on freight rates has also contributed to the slowdown. As a result, we have revised our outlook for the segment to 5-8% from 13-15% earlier for FY 2017. Likewise, for Buses, the growth outlook stands revised at 7-9% due to lower than estimate delivery of buses to SRTUs on account of funding constraints. Comparatively, the LCV (Trucks) would continue to grow at 11-12% supported by pick-up in consumption-driven sectors and low-base. Unlike M&HCV Trucks, the LCV Trucks have however continued to register healthy growth up 11.2% in 5m FY 2017 aided by replacement demand and pick-up in demand from consumption sectors.
Tractors: Growth in domestic volumes continues, driven by improvement in farm sentiments
Domestic tractor market volumes have continued to exhibit positive growth trajectory since February 2016, fuelled by improvement in farm sentiments, on the back of improved rabi production and a healthier southwest monsoon (97% of Long Period Average) as compared to previous two fiscals. Buoyed by the improved monsoon, there has been an expansion in kharif sowing area, which as per first advance estimates (released in August 2016) is likely to result in an improvement in kharif crop production. There has been a recovery in tractor volumes across most large tractor markets with the exception of Northern region, with a pan India growth in volumes of 20.3% in 6m, FY2017 (YoY basis); however, the same comes on a low base and a sustained improvement in demand remains to be seen. Tractor exports growth, which moderated in FY2016, has remained weak during the current fiscal; the weak demand in the global markets has led to contraction in volumes (0.6% YoY decline in 6m, FY2017). M&M has witnessed a healthy volume growth in the current fiscal (growth of 26.6% on YoY basis in 6m, FY2017), gaining market share across several regions. Escorts has also recorded a healthy growth in volumes (21.0% on YoY basis) in 6m, FY2017.