AUTO EUPHORIA MAY NOT LAST

But according to estimates by analysts such as HSBC Securities' Sachin Gupta, growth in vehicle sales is expected to taper off, at least in the first quarter of 2009-10. And Hero Honda managing director Pawan Munjal concurs, predicting a "tough" time for two-wheeler companies in the entire first half of the new fiscal. Even Maruti Suzuki, though unwilling to give out projections, appears to be in agreement. It has adopted a "wait and watch" policy and is already gearing up for "flexible" manufacturing to keep pace with fickle demand in the coming months.

 

Let's begin with Maruti's prognosis. The country's largest carmaker has indeed witnessed very good growth between January and March this year, with March numbers springing a welcome surprise at almost 15% growth in domestic car sales and export volumes doubling.

 

But in a conference call with analysts on Thursday, Maruti officials remained cautious about the coming months. Ajay Seth, chief financial officer, said, "The first quarter (of the current fiscal) is critical to watch....we should not get carried away by the (good sales) in March quarter. Let's see if the stimulus packages, Sixth Pay Commission payouts etc -- the positives -- continue into this fiscal." The company is capable of making a million cars on an annualised basis and Seth said capacity utilisation "would be highly flexible, depending on demand", without giving out any forecasts.

 

On the exports front too, Maruti appears cautious. The A Star, its export-oriented model, was initially expected to help the company ramp up total exports to 2 lakh units by 2010-11. But with the contract manufacturing deal with Nissan (which was initially meant for 50,000 units from this year) yet to be firmed up and European markets looking weak, it remains to be seen if this ambitious export target is met.

 

HSBC's Gupta points to several factors that could hamper overall sales growth in the coming months -- a drop in purchases by central government employees, limited scope for inventory push and of course, the base effect. His predictions paint a grim picture for almost all sectors. On two-wheelers, he cites marginal growth in domestic sales for TVS Motor and Bajaj Auto's declining bike numbers but says that sales in this category are better than in cars.

 

Commercial vehicles, which has seen bloodbath through the second half of FY09, also seems unlikely to show any real growth in the near term although the extent of sales decline may fall. Indian Foundation of Transport Research and Training (IFTRT) estimates that sales in the 5-49 tonne truck/trailer range fell 49% to 17,483 units (34,431 units) while light commercial vehicle sales dropped by 21.02% last month at 2,707 units (3,428 units).