No festive lift, two-wheeler firms pin hopes on marriage season

With the benefit of Navratra and Gudipadwa festivities not visible in April, the two-wheeler manufacturers are aiming to bring down their channel inventory further in the coming months. Historically, after the festive season, players like to have around 21-30 day inventory.

The current inventory for two-wheelers level across the country continues in the excess of 45-50 days on average, though it is still lower than the alarming level of 80-90 days of inventory, which marked the past few months. In some of the geographies, the inventory level rose to as high as 100 days, the retailers claim. The inventory level, which has been highest for the two-wheeler category, had turned into a nightmare for the retailers as a muted sales was pushing many towards the deep financial losses.

Traditionally, Navratra and Gudipadwa attract higher sales as customers prefer to making bookings during this auspicious period. As a result, vehicle manufacturers dole out heavy discounts and other offers to lure customers.

Sales were muted even during Diwali season, making it the worst of sales season in the past several years.

However, the marriage season is still on, and vehicle manufacturers are hoping for some consolation from it.

Market leader Hero MotoCorp reported a 17% year on year decline in sales to 5,74,000 units in April. Its current inventory level is around 45-50 days, which the company is striving to bring down further by 5-10 days, the company executives claim. Sanjay Bhan, Hero MotoCorp - head of sales & after sales during a conference call said it was pretty much in line with what exactly is happening in the industry. The company had made some significant corrections in March and some more was expected in Q1, he said. Most of the inventory pile-up across the industry happened because of a relatively poor festive season and not in just Q4, he said.

Bajaj Auto (BAL), on the other hand, reported an overall marginal 2% YoY growth in sales at 4,23,000 units. BAL has been playing hard on pricing strategy in order to recover the market shares it lost to competitors, especially in the commuter segment. Since the entry-level motorcycle segment accounts for nearly one-fifth of BAL's sales, the pricing strategy has worked, albeit will result in lower realisations. "BAL has channel inventory of 55 days, which is likely to trend down to 45 days in FY20," ICICI Securities said in a note.

TVS Motors reported a modest sales growth of 4% YoY at 3,06,000 units. Domestic sales rose 3% YoY to 2,49,000 units while exports rose 13% YoY growth at 70,000 units. As per the company executive, TVS has dealer inventory levels of 4-5 weeks, which is among the best in the industry, but still though there is a scope for improvement in certain geographies.

The Indian auto sales have been experiencing a prolonged slowdown since past over seven months. According to the executives across the OEMs, retailers, component makers, one of the primary reasons for the slowdown has been tightening of liquidity by non-banking financial institutions (NMFCs) following the emergence of Infrastructure Leasing & Financial Services (IL&FS) scam. The other prominent reasons include the rise in fuel prices, rural distress due to lack of rains in certain regions of the country, new insurance laws leading to increase in its costs, the slowdown in certain industries leading to dip in consumer sentiments.

A Chennai-based analyst with a global consultancy firm claim that while liquidity crunch has improved in urban areas since the past few months, rural markets are still to recover. "Expect financing to be slower in the first half of this financial year before easing up in the second half," he said.

Federation of Automobile Dealers Association (FADA) president Ashish Kale had earlier said, "The inventory reduction by way of production cut is a painful decision for all stakeholders, especially OEMs and that too in a growing market like India. I am thankful to our Principals for understanding the pain and pressure that auto dealers were going through with historically high inventory and that too in such a tight liquidity situation."

STUCK IN A JAM

• Hero MotoCorp reported a 17% year on year decline in sales to 5,74,000 units in April. Its current inventory level is around 45-50 days
   
• Bajaj Auto, on the other hand, reported an overall marginal 2% YoY growth in sales at 4,23,000 units. It has inventory of 55 days