As per the July data, auto sales in India have risen for the second straight month, indicating a recovery for the sector hit by a prolonged slump.
After witnessing a decline for nine months, the sector saw a pick up in demand in June on the back of lower excise duties and new product launches.
However, the big question at this point is -- whether the engines of growth are sputtering back to life and whether this is sustainable and can be built upon?
In an interview to CNBC-TV18, Vikram Kirloskar, President, Society of Indian Automobile Manufacturers (SIAM), which is expected to release its data next week, said the sector has seen a significant pick-up in sales in the last three months. He sees positive sales in July also. "Almost three months of growth, albeit not great, but definitely steady," he said.
Kirolskar expects this positive trend to continue for sometime. He even said the customer footfalls have increased considerably in showrooms. "We will start seeing the real growth if there is some improvement in GDP… And in case we see interests rates coming down by say November-December, if inflation is under control, we will see a much bigger boom in the auto industry," he added.
Vinod Dasari, MD, Ashok Leyland , said the company has significant export orders in hand.
Hinduja group flagship company Ashok Leyland's first quarter net loss has narrowed to Rs 47.95 crore against Rs 141.75 crore during the same period of the previous fiscal. Even the net sales of the company rose to Rs 2,434.61 crore for the first quarter, as against Rs 2,313.21 crore on a year-on-year basis.
Dasari said the sales pace for the truck business has kind of flattened out on a year-on-year basis. "But overall we still showed a slight improvement in sales in Q1 on a Y-o-Y basis, due to five other businesses that we have. Bus forms a large chunk of our business. The truck business is cyclical, and will probably come back in October-November," he said.
He further added that the company has got both domestic and export orders, with current bus orders in excess of 7000 and defence orders more than 2000 vehicles. "This will keep us busy over the period of time till truck demand comes up," he said.
Dasari expects an 8-10 percent improvement in volumes going ahead and sees margins to be better than 5 percent in Q2.
The company has increased prices by 4-5 percent in the last few months. Dasari expects better pricing and improvement in volume to aid profitability. He also sees a 25-30 percent increase in export volumes.
Below is the transcript of Vikram Kirloskar and Vinod Dasari's interview to CNBC-TV18's Shereen Bhan
Q: How sustainable you believe the current improvement is as far as passenger car sales growth is concerned. We have seen two consecutive months of growth, of course I know the SIAM data is going to be released later this week but give me your assessment on the back of feedback that you have got coming in from various companies. How significant is the revival at this point in time?
Kirloskar: I think you are going to see July also pretty good so that is a really positive sign, three months of albeit, not great growth but steady growth. I think this will continue for sometime from what I hear the kind of orders that are coming in, the enquiries, the customer footfalls in showrooms. The real growth we will start seeing if we see some improvement in Gross domestic product (GDP).
See one of the points the RBI made yesterday was it is not reducing any rates, it is going to probably keep the same rates going on for sometime but some liquidity will be available. But if we start seeing interest rates coming down may be November, December, inflation under control and interest rates also coming down, I think we will see a much bigger boom in the auto industry.
Q: You said that you expect the numbers for July to look significantly better over June.
Kirloskar: Not significantly better but somewhat better.
Q: As we approach the festive season what is the indication that you are getting because the monsoon deficiency has also eased, we are not faced with a drought like situation any longer so what is the feedback that you are getting in terms of rural sales kicking demand further?
Kirloskar: In our company the information is that the footfalls have definitely increased, the demand for Innova and some of our other larger products is very strong, Innova and Fortuner. The other products are okay but I think across the industry there is definitely an improvement in footfalls in dealerships across the country.
Q: Speaking of a revival if your Q1 numbers are anything to go by then it looks like things have turned the corner even as far as Ashok Leyland is concerned and the commercial vehicle sales are concerned. The deceleration our understanding is has perhaps bottomed out at this point in time. Give me a sense of how much improvement you anticipate over the kind of numbers that you have seen in Q1?
Dasari: First and foremost if you look at only the truck sales and compare them to last year's truck sales, you are right that the drop in sales, the pace at which the drops were happening that has flattened out. So in a way the truck business is flattening out.
Overall we still showed a slight improvement in the sales compared Q1 to Q1 but that was because of the other five businesses we have. For example bus is a very large chunk and we know that the truck business is what is cyclical. This will probably come back sometime in October, November time frame if the government policies continue to hold the market will come back.
But meanwhile we have got both domestic and export bus orders, we have in excess of 7000 orders in hand that we have to now work towards delivering.
Equally the defence orders we have got now is more than 2000 vehicles worth of orders in hand so this will keep us quite busy over the next three-four months while the truck demand comes back.
Wherever the government has taken direct action where they are direct customers whether it is public transport or defence, we are seeing immediate traction. Wherever they are talking about infrastructure projects or mining coming back I think the sentiment is improving. For example for the first time in a long time the multi-axel vehicle which is nearly half of the total truck segment, has actually shown a 5 percent improvement over the last year. This is after like 20-30 months of continuous decline. So that means that the sentiment is coming back, slowly but surely. And when this business comes back, it comes back very fast. Usually it comes back in Q4, but I think we are starting to see the early signs of it already.
Q: So what will that actually mean in terms of overall volumes because overall volumes in Q1 were down 8 percent year-on-year but your medium and heavy commercial vehicle volumes have seen a slim improvement. So what can we expect in terms of volume growth given the fact that you do see a visible turnaround in sentiment as well as what is happening on the policy front?
Dasari: We don't know exactly when the turnaround will happen but it is fair to say roughly an 8-10 percent improvement in volume should be happening. What I was trying to say is that not all of our businesses are tied to this cyclical upturn which is the truck business. Even without the truck business between now and almost the end of the calendar year we are going to be at fairly high levels of demand. We should be pushing these volumes up because we have the bus orders that we have to deliver both because we have export orders as well as JNNURM, two orders. And we suddenly have a big increase in the defence orders, almost a doubling of the orders that we normally get from defence for this year. So that is going to keep us quite busy till the end of the year anyway. So even if the volumes don't come back, I think our overall revenues should be higher.
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