The effects of demonetisation on the broader economy was a much-talked about issue in the past two months of 2016, but the impact is already being felt, if not on the overall economy per se, but at least on the labour-intensive local automobile industry in the country.
For the second straight month, several automobile companies -- both two-wheelers and four-wheelers, felt the pain of note ban and have posted dismal vehicle sales numbers in December.
The Pune-based Bajaj Auto, which announced its numbers a short while ago, said it sold 225,529 vehicles last momnth, a drop of 22 percent over the corresponding month a year ago when it had sold 289,003 units.
Segment-wise, Bajaj Auto's motorcycle sales in the domestic market declined 11 percent at 106,665 vehicles, while exports witnessed a steep 24 percent drop at 96,647 units, indicating the company was clearly hit by the government's note ban move thereby prompting customers to postpone their vehicle purchases owing to lingering cash shortage situation in the economy.
The company fared in a similar vein in November as well. It reported a 13 percent decline in total sales in November at 2,69,948 units as against 3,09,673 units in the same month last year.
The company's domestic motorcycle sales, commercial vehicles and total exports faced downward pressure as the effect of demonetisation was beginning to be felt amongst consumers.
In fact, total motorcycle sales declined 10.21 percent to 778,178 units, from 8,66,696 a year earlier; while total two-wheeler sales in November fell 5.85 percent to 12,43,251 units compared with 13,20,552 units in the year-ago month. Sales of commercial vehicles, too, were down 11.58 percent at 45,773 units last month.
Analysts feel other two-wheeler and four-wheeler companies are also likely to post disappointing sales numbers for December in days to come mainly due to the impact of demonetisation on the economy.
Things are more or less similar in the passenger vehicle segment as well, with both Maruti Suzuki India and its close rival Hyundai Motor India reporting fall in domestic sales for the month of December.
Maruti Suzuki posted a 4 percent drop in domestic sales in December at 106,414 units as against 111,333 units sold in the same month last year. Similarly, Hyundai's last month sales dipped 4.3 percent at 40,057 units over the corresponding month of last year.
“While the retail demand for our products was strong, our wholesale (numbers) in December are as per our plan decided at the start of the year,” The Economic Times reported quoting R S Kalsi, executive director (sales and marketing) of Maruti.
Few days back, the company had said its passenger vehicle sales in December will recover, surprising many at a time when concerns of of note ban hitting the economy hard in coming months were discussed at length by the experts.
In December, Maruti had undertaken shutdown of its facilities for a week, raising suspicion the company was doing so to avoid inventory pile up at its dealers.
Not just Maruti, others such as Hyundai Motor, Mahindra & Mahindra, Renault Nissan and Ford Motor, too, resorted to extended shutdowns from a week to around two weeks in the November and December period.
In the commercial vehicle segment, Eicher Motors faced with demonetisation challenges reportedly dipped by 21 percent in its commercial vehicle sales at 3,246 units.
According to a report by brokerage firm Emkay released last month, states like Delhi, Assam and West Bengal were worst affected and witnessed a sharp drop of 32-37 percent in vehicle registrations in the first week of December compared with last week of November. The state of Uttar Pradesh, too, had also seen a decline of 42 percent in first week of December.
Further, in the second week of December, Delhi, West Bengal and Assam saw a sharp drop of 45-73 per cent over the last week of November, the report said.
Not just the automobile industry, industry experts said auto component industry, too, are likely to feel the demonetisation heat. Brokerage firm ICRA in its report anticipates auto component industry to grow at slower pace than earlier forecasted 8-10 percent growth in FY2017, in the backdrop of slower than expected pickup in realisation, subdued exports as well as impact on OE demand due to demonetisation measures.
In the interim, auto companies as well as their vendors could witness some correction in demand. Also, continued demand slowdown in the US M&HCV market as well as moderating growth in US as well as EU PV market will further dampen overall growth expectations, ICRA said in its report.
According to the ICRA report, in FY-2016, operating margins of auto ancillaries benefited from soft commodity prices, and these benefits were eventually passed on to the OEMs with a lag of a quarter of two. However, the benefits of commodity prices had peaked out in Q3 FY2016 and RM expense (as percentage of sales) have started increasing sequentially since then.
Updated Date: Jan 02, 2017 13:01 PM