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CVs and 3Ws fuel the domestic automobile volumes at 17% yoy in April 2018

Data released by Automobile industry body, Society of Indian Automobile Manufacturers (SIAM) revealed that the domestic industry clocked volumes in excess of 2mn units for a fourth consecutive month in April 2018. Domestic vehicle volumes across all categories totaled 23.8 lakhs in April 2018 vs. 20.3 lakhs in April 2017, a growth of 17% yoy.

Passenger Vehicles (PVs) were up 7.5% yoy led by vans (19% yoy) and Utility Vehicles (UVs, 12% yoy). Customers continue to favor UVs, especially compact UVs vis-à-vis sedans, which has led to the trend of UVs outpacing Passenger Cars over the past several months. The sector received a sentimental boost recently when Maruti Suzuki India Limited (MSIL) guided for double-digit growth for FY19, on the back of 8% yoy growth in FY18. Even the Managing Director of Mahindra and Mahindra Limited (M&M) said he expects more than 10% yoy growth for PVs in FY19. This is subject to certain aspects falling in place – (a) normal monsoon, (b) interest rates hike (if any) not exceeding 25bps, (c) oil price staying in the $70-75/barrel range.

Two wheeler (2W) volumes were up 17% yoy in April 2018. Volume growth for motorcycles, scooters and mopeds were up 19% yoy, 13% yoy and 17% yoy respectively. As per SIAM, 2W sales were led by improving rural market and marriage season sales. The improvement in rural sales augurs well for Bajaj Auto Limited (BJAUT) and Hero MotoCorp Limited (HMCL), which derive majority or entire sales from motorcycles since rural areas have a higher proportion of motorcycle sales compared to scooter sales.

Three wheeler (3W) sales were up 37% yoy led by strong sales from BJAUT (up 80% yoy) and TVS Motor Company Limited (TVSM, up 115% yoy).

Commercial Vehicle (CV) volumes (up 76% yoy) continued to fly on the back of a weak base of last year (April 2017, down 23% yoy). However, industry experts argue that it was not just a weak base that propelled sales. Factors such as pick up in infrastructure activity, mining, e-commerce and imposition of overloading ban. Top CV makers in India such as Tata Motors Limited (TML), Ashok Leyland Limited (ALL), Volvo Eicher Commercial Vehicles (VECV) and M&M have expressed their bullishness w.r.t. the sector for the next couple of years. As per M&M management, FY19 will be one of the best ever for CVs. There will be a lot of replacement demand that will happen in FY19 and FY20 before BS-VI regulations come into effect from April 1, 2020. The BS-VI vehicles will be of a higher price, and hence fleet owners will buy BS-IV models aggressively before the implementation comes into effect.