INSUBCONTINENT EXCLUSIVE:
ET Intelligence Group: The volume growth in the passenger vehicles (PV) segment in India has contracted in 15 out of the past 16 months with
one-year forward earnings
would prefer to refill their inventories following upbeat sales during the latest festive season and to what extent.
In addition, the
company faces stiff competition in the SUV segment at a time when it has vacated the diesel segment amid regulatory changes
These factors may make volume improvement an uphill task.
The slowdown and liquidity problem faced by dealers has led to a reduction in
inventory across most carmakers and focus on retail sales as opposed to wholesale volumes (vehicles despatched to dealers).
This is evident
from the divergence in the retail and wholesale sale volumes
For instance, in October, retail sales rose by11 per cent, according to data provided by the Federation of Auto Dealers Associations, while
wholesale data released by the Society of Indian Automobile Manufacturers (SIAM) showed a measly growth of 0.3 per cent.
The carmakers made
concerted efforts to reduce inventory to 25-30 days in October from 50-60 days a few months ago to ease the burden on dealers
Wholesale volume growth will largely depend on whether the companies refill dealer inventories to levels existing before the slowdown
This is also dependent on whether the dealers would risk piling up inventories at a time when demand continues to remain weak.
Maruti
It is expected to fall 15-17 per cent for the full FY20, the worst decline in over five years.
Maruti Suzuki has launched its eight petrol
models ahead of new emission norms effective from April 2020
However, the company will not be manufacturing diesel vehicles in the medium term as it is evaluating cost competitiveness of diesel cars
under BS-VI.
Kia Motors has launched its sports utility vehicles (SUVs) Seltos in both petrol and diesel variants
Even as the fate of diesel vehicles remain uncertain under BS-VI regime, a sizeable number of bookings is for the diesel variant.
Maruti may
also face a loss of market share in the fast growing compact SUV space due to lack of diesel models
According to Kotak Institutional Equities, Maruti has lost 190 basis points of market share yearon-year in the current fiscal so far
primarily driven by 15 per cent loss of market share in the compact SUV segment
These factors makes it a tough task for it to revive volumes, which may affect its stock valuation.
