Rising Interest Rates Starting to Bite

Indian automobile market has, slowly and surely, begun to react to the hardening of interest rates. This finds reflection in the sales for the month of March 2007 across segments. While overall performance in the fiscal 2006-07 looks healthy, the March sales are a bit letdown and dampening. The other reason for not-too-impressive showing in March, especially in the case of cars, could also be attributed to the higher base of the March 2006, which uncorked the pent-up demand as the customers had kept their purchases on hold until the presentation of Union Budget 2006 anticipating cut in excise duty on passenger cars.

While domestic sales of vehicles do not look exciting, the exports, to some extent, came to the rescue of industry to enable two-wheelers and three-wheelers hang onto the positive growth path, albeit precariously. The passenger vehicle sales figures are also not something to cheer about. Passenger vehicle sales (domestic & exports) grew by 7.8%, CV sales by 13%, 3-wheeler sales by mere 0.5%, and 2-wheeler sales by just 0.26%, in terms of numbers in March 2007. Domestic sales in case of 2-wheelers and 3-wheelers were in a negative terrain and slipped by (0.5%) and (7.3%), respectively. Overall, the industry grew by paltry 2%.

Car market leader Maruti Udyog Limited sold 6,35,629 vehicles in the domestic market in 2006-07, the highest ever annual sales in the company's history. This marks a growth of 21 per cent over domestic sales in 2005-06. In all, the company sold 6,74,924 vehicles during the year, including exports of 39,295 vehicles. Exports grew by 13 per cent over 2005-06.

As for the March sales figures, the company sold 64,556 vehicles in the domestic market, the highest ever in any month. This signifies a growth of 6 per cent over March 2006. Including exports of 7,216 units, the company sold 71,772 vehicles in March 2007.

During the month, sales of A2 segment vehicles grew by 26 per cent y-o-y. Maruti Omni registered its highest ever monthly sales at 8,566 units.

The combined sales figures for February plus March this year show a growth of 26.5 per cent over the same period last year. While domestic sales in February 2006 were unusually low, sales in March 2006 had shot up after the excise reduction. For that reason, a comparison of sales of February & March for 2006 and 2007 would give a more accurate picture of the growth performance.

 
MUL sales during the FY07 were powered by, among others, the Alto which grew by a whopping 41.1 per cent over the previous year. It became the first Indian car ever to achieve 2,00,000 units of domestic sales in a single fiscal year (11 months), and closed the year at 2,23,846 units.

As a part of the pre-owned cars initiative - TrueValue, the company bought and sold over 84,000 pre-owned cars during the year. Of the customers who sold their pre-owned cars to TrueValue, over 92 per cent exchanged it for a new Maruti car.

Under Maruti Insurance, the company issued 13,95,036 policies including 5,34,152 fresh insurance policies. Total policies grew by 29.4 per cent over 2005-06.

The company continued to expand its network, with sales outlets growing to 396 in 225 cities (from 350 outlets in 212 cities at the start of the year). Service workshops went up to 2,445 (from 2,096 at the start of the year), across 1172 towns and cities. The network for True Value pre-owned cars grew to 213 outlets in 150 cities (187 outlets at the start of the year).

Hyundai Motor India (HMIL), the second largest passenger car maker and the number one car exporter clocked total sales tally of 28,239 units in March 2007, with 19,300 units constituting domestic sales and 8,939 units accounting for exports. In case of Hyundai too, the higher base effect came into play, with March 2007 sales figure showing a slippage of 6% vis-à-vis March 2006. HMIL's segment-wise sales in the month of March 2007 were: A2 Segment - 23,438 units, A3 Segment - 4,564 units, A4 Segment - 66 units, A5 segment - 113 units, and SUV Segment - 58 units.

As regards its annual performance, HMIL registered a healthy 19% growth in its sales in FY 2006-07 (1st April, 2006 to 31st March, 2007). HMIL's cumulative sales in the FY 07 added up to an impressive 195,261 units in the domestic market representing a growth of 22.8% and 115,525 units by way of exports that grew by 13.15 %. The overall growth for the last quarter, viz. January-March 2007 was 16.4% with sales tally of 79,926 units compared to 68,653 units in Jan-March 2006. Hyundai Motor India recently shipped the first batch of 'Made in India' Getz to Germany.

Honda Siel Cars India (HSCI), registered an all-time high sales of 61,327 units in the financial year 2006-07. This translates into a phenomenal growth of 43.5% over the last fiscal year when the company clocked 42,727 units.

HSCI closed the financial year on an upbeat note with record sales in March 2007. The company sold 8,489 units in the month - an increase of 38.7% over 6,120 units sold in March 2006. HSCI's March 2007 sales comprised: City - 5,164 units; Civic - 2,546 units; Accord - 389 units; and CRV - 390 units.

Honda Civic sold a total of 16,262 units in a period of nine months since its launch in India in July 2006. Honda City ZX accounted for 40,464 units in the year. Total Accord and CR-V sales for 2006-07 stood at 2,728 and 1,873 units, respectively.

General Motors India witnessed sales of 4,542 cars in March 2007, its highest ever monthly volume since inception.

The March 2007 sales registered a 12 per cent growth over 4070 units sold in March 2006. March 2007 sales numbers included: Chevrolet Tavera - 2,175 units, Chevrolet Optra -426 units, and the Chevrolet Aveo - 1,941 units.

Another global major, Ford India sold 5,382 units in March 2007, which despite being the second best monthly sales performance fell short of the domestic sales figure of 5,688 units posted in March 2006. During the financial year 2006-07, Ford India sold 41,797 units as compared to 28,840 units in 2005-06, witnessing an overall growth of 45%.

Mahindra & Mahindra's Automotive Sector, a part of the $4 billion Mahindra Group with a growing global presence, came up with a decent performance clocking sales of 20,623 vehicles, including exports, in March, thus registering a healthy growth of 25.8%. Domestic vehicle sales for the month of March were up 27.5%. The Scorpio also witnessed good sale numbers in March, clocking volume of 5,260 units and, in the process, registering a growth of 56% over the corresponding month last fiscal.

Overall, during the financial year 2006-07, M&M vehicle sales grew by healthy 19.3% to reach 1,78,229 units from 1,49,424 units in 2005-06.

Bucking the March blues, Passenger Car Unit of Tata Motors Ltd (TML) witnessed a 10% growth in its passenger vehicle sales (domestic sales + exports) in March 2007 to reach sales figure of 27,701 units from 25,166 units in March 2006. While Indica and Indigo range selling 21,474 units witnessed a growth of 8%, the Sumo and Safari range, accounting for a sale of 6,227 units, grew by 10%.

TML's CV sales at 30,720 units rose by 12.3% in March 2007 over 27,289 units in March 2006, which pales into a moderate growth in the backdrop of runaway growth of over 30% posted by CV segment up to February 2007.

Tata Motors' annual performance was spectacular and exciting inasmuch as the company recorded a robust growth of 36.43% in CV segment and 17.3% in passenger car segment during the FY07. TML notched up sales, including exports, of 334,363 CVs and 244,934 passenger vehicles during the year.

Ashok Leyland, the Hinduja Group flagship in India, closed the year ended 31st March 2007 with an all-time high sales of 83,101 vehicles. This represents a 35% growth over its 2005-06 sales of 61,655 vehicles. Sales in the domestic M&HCV segment touched 76,741 units, reflecting a 37% growth. Exports volumes were also up 23% at 6,025 vehicles.

These annual numbers were helped by the overall buoyancy of the economy and industry and the robust growth in the MAV (Multi-Axle Vehicles) and Tractor-trailer segments, which have long been Ashok Leyland's strongholds.

However, the signs of slowdown were visible in Ashok Leyland's March 2007 sales performance. The company's sales in domestic and overseas markets in March 2007 aggregated 8,444 units - a climbdown from 8,577 units in March 2006.

Hero Honda Motors Ltd. (HHML), clocked sales of 277,915 two-wheelers in the month of March, thus ending the financial year 2006-07 with an impressive cumulative tally of 3,336,756 units. The company had registered sales of 272,312 units in March 2006 and a cumulative 3,000,751 units in the previous fiscal (2005-06).

While highly popular brands such as Splendor and Passion Plus continue to bring in the large volumes and keep consolidating the company's stronghold on the deluxe segment, the newly-launched CD Deluxe has been clocking impressive numbers to build HHML's presence in the entry segment. The other big launch, CBZ X-treme has shaken up the premium segment, and has been clocking 15,000 to 20,000 units per month.

It is the success of these new products launched during this financial year, as also the aggressive marketing campaigns, which helped HHML register better-than-industry growth in the last few months.

In keeping with the overall slowdown in the automobile market, Bajaj Auto saw its two-wheeler sales in March 2007 drop by 10% to 165,524 units from 183,927 units in March 2006.

Similarly, the company's 3-wheeler sales at 24,576 units in March 2007 were virtually flat as against 24,723 units in the corresponding month previous year.

However, FY07 as a whole turned out to be a good one and witnessed a robust motorcycle growth of 24% for Bajaj, on the back of strong pull for its lead brand the Bajaj Pulsar. The Pulsar range saw a full upgrade - introduction of the 200cc and the 220cc DTSFi top end models. The motorcycle market share improved from 30.8% in FY06 to 33.5% in FY07.

The Bajaj Discover range continued to gain value segment customers and the Bajaj Platina introduced in April '06 did brisk business, closing its first year with 739,952 units. For the year as a whole, >100 cc bikes contributed 52% of Bajaj Auto's motorcycle sales.

At 321,778 units, Bajaj Auto's 3-wheelers recorded a healthy growth of 28% during the FY07. Bajaj test marketed its 2-stroke Digital Direct Injection (DDI) 3-wheeler in Pune. The product has received a good response, owing to 30% better fuel efficiency, superior performance and features like self-start.

With 76% jump in export volumes, Bajaj continued to be India's top exporter of two-wheelers and three-wheelers. Highest ever 2-wheeler exports of over 298,000 units, highest ever 3-wheeler exports of over 140,000 units and record export turnover of over Rs. 1,690 crores were posted during FY07. In Sri Lanka, Bangladesh and Colombia, Bajaj bikes garnered leadership position. FY07 also saw the company's business launch in Indonesia and Nigeria. For the fiscal year 2007-08, Bajaj is targeting 10% growth to reach 3 million units.

TVS Motor Company too encountered the March blues with its motorcycle sales at 73,239 units falling well short of the sales figure of 83,896 units in March 2006. The total 2-wheelers sold by the company in March 2007 aggregated 128,207 units as against the sales figure of 128,857 units a year ago. The company witnessed export of 8,508 units (6,032 units) recording a growth of 41% y-o-y.

As regards its annual performance, TVS Motor Company closed the financial year 2006-07 with 15% growth in motorcycle segment. The motorcycles sales clocked 9,24,813 units in FY 2006-07 compared to 8,06,708 units in the previous year. The total two-wheeler sales at 15,28,214 units witnessed 14% growth over 13,42,204 units sold in the previous financial year. The company's scooter sales standing at 2,58,888 units in 2006-07 were up 6% over 2,45,276 units in 2005-06.

On the export front too, TVS Motor Company registered its highest ever sales, clocking 1,03,013 units in the financial year 2006-07 compared to 79,679 units last year and thereby, growing at 29%.

The automotive scenario is somewhat hazy at the moment. However, as the economy continues to grow at a healthy pace, the demand should pick up, helped by the ensuing marriage season and the promotional offers from the manufacturers, dealers and financiers to soften the impact of rising interest rates. Moderation in the growth rates is expected in the FY08, nevertheless.