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BSVI norms implementation will be key: Passenger vehicle registrations up in Oct; numbers may dip again

Domestic passenger vehicle sales declined in November. ( Representational)

Festive purchases may have boosted retail sales of cars in October — registrations for passenger vehicles rose 11 per cent year-on-year, according to the data from Federation of Automobile Dealers Associations of India (FADA).
But weak consumer demand has analysts worried as sales might not pick up meaningfully in the near term. Indeed, sales of two-wheelers were up just 5 per cent YoY, which they point out is a modest increase given both Dussehra and Diwali were celebrated in the same month.

With the festive season over and BSVI norms implementation just around the corner, the sales trajectory could dip again, analysts caution. Much would depend, they point out, on how strong rural demand is post the harvest. The good news is that the average inventory for passenger vehicles (PVs) dropped to 25-30 days in October from nearly 35 days in September; large discounts helped dealers push though sales.

Nonetheless, Maruti Suzuki India chairman RC Bhargava observed it is difficult to anticipate when the recovery would happen. Several factors, including elevated interest rates that required customers to put down more as the initial deposit, were hurting demand, he said.

Bhargava said the demand for cars has slipped sharply since last year as multiple regulations, including those related to safety, insurance and emissions, were introduced at the same time.

“This led to an increase in the cost of acquisition for the consumers. On top of it, the availability of finance for cars went down substantially, impacting demand,” Bhargava said at the company’s post-earnings press conference.
Inventories for two-wheelers manufacturers remain at a fairly elevated 35-40 days. Rakesh Sharma, executive director, Bajaj Auto, said Q2FY20 had been a difficult quarter to navigate, particularly July and August.
“But we started to see some signs of revival in September itself and with a lot of dust settling down on discussion around tax cuts, things have improved,” Sharma added.

Manufacturers are keeping their fingers crossed as the bump seen in the festival season sustains. The woes of CV makers continued in October, as both wholesale and retail volumes plummeted 23 per cent y-o-y.

Niranjan Gupta, CFO, Hero MotoCorp, observed in the post-results analysts’ call that sustained recovery could still take time and that the management remained optimistic about long term. “We are focusing on all levers of growth and not just discounting,” Gupta told analysts. Sanjay Bhan, head - sales & after sales, Hero MotoCorp, said the company is looking to bring down the inventory levels to 30 days. “Usually for Hero, 45 days is normal given our network, but when the demand is poor, even 45 days are higher,” Bhan said.

Analysts at Nomura wrote that while the near-term outlook for CVs remains challenging, the industry recovery is likely to be sharper from H2FY21, driven by an uptick in the investment cycle, favourable base and support from replacement cycle.

Girish Wagh, president of commercial vehicles business at Tata Motors, said the enquiries have risen compared to last month in M&HCV and I&LCV, with fleet owners initiating discussions for replacement of older vehicles. fe