August sales: Hero MotoCorp’s weak show no reason to ring alarm bells on auto sector slowdown
The key takeaway from August sales volume numbers for investors is that demand for commercial vehicles has been stronger than that for passenger vehicles and two-wheelers.
Auto sales volumes for August have been impressive for most companies, except Hero MotoCorp Ltd. Yet, the shares of all auto companies reacted negatively on Wednesday after an overnight escalation in the West Asia conflict , dragging the Nifty Auto index over 3% lower.
Among two-wheeler companies, Hero MotoCorp’s domestic sales volume growth was 4% year-on-year, much lower than that of its peers. TVS Motor Co. Ltd.’s domestic sales volume growth was the highest at 18%. Bajaj Auto and Eicher Motors’s Royal Enfield reported growth of 10% and 11%, respectively.
Among car companies, Maruti Suzuki India reported a 21% year-on-year growth in sales volumes. However, concerns were expressed on two fronts: a 7% year-on-year drop in exports, and a 10% month-on-month drop in domestic passenger vehicle (PV) sales to 176,000 units.
Maruti Suzuki’s management clarified in interviews to the media that exports suffered because of the lack of ships, which now take a longer route around the Cape of Good Hope to skirt the conflict zone in West Asia. So, lower exports do not reflect a softening in demand. Maruti Suzuki is confident of boosting exports in the future with a diversified base of more than 100 countries.
The 10% sequential drop in Maruti Suzuki’s domestic PV sales was driven more by a 17% decline in small cars, even as utility vehicle (UV) sales were little changed. Volumes in June were unusually low versus April and May due to price hike uncertainty. The underperformance of June was made up in July, leading to a significantly high base for August in a month-on-month comparison.
The management also cited some supply-side constraints. Besides, the premium segment (with higher margins) sales in UVs have risen marginally month-on-month and have not dropped.
Among PV makers, Tata Motors performed the best with 59% year-on-year growth in domestic sales volumes. But its investors give less weightage to monthly volume data as its stock price is more sensitive to developments in its UK subsidiary Jaguar Land Rover Automotive PLC.
Mahindra & Mahindra (M&M) was the second-best performer, with a 50% year-on-year jump in volumes. While Hyundai Motor India’s domestic sales growth came in at 24%, weak exports and supply-side constraints, similar to those cited by Maruti, pulled down overall growth to 9%.
Tata Motors commercial vehicles (CV) saw a 49% year-on-year volume growth to 44,400 vehicles, whereas its smaller rival Ashok Leyland reported 38% growth at 21,000 units. The strong sales growth data vindicates statements from CV makers that the average fleet age of 9-10 years needs replacement.
Among tractor companies, Escorts’ sales growth at 19% year-on-year significantly outperformed M&M’s 5%, but it has to be noted that the former has a lower base. Demand outlook remains contingent on kharif crop output, water reservoir levels and the festive season.
The key takeaway from August sales volume numbers for investors is that industrial demand (CVs) has been stronger than consumer demand (PVs and two-wheelers). In the next couple of months, data is likely to be robust for most automakers as dispatches to dealers pick up ahead of the festival season.
After that, it remains to be seen if the growth momentum continues on a high base of H2FY26, triggered by the cuts in the goods and services tax in September last year.
