Dealers are still dealing with the high inventory that built up in the previous months.
Credit: Reuters Photo
Bengaluru: Retail sales of passenger vehicles (PV), which has been sluggish in the past few months, finally picked up in July, going up by 10.18 per cent year-on-year (YoY), according to a report by the Federation of Automobile Dealers Associations (FADA) released on Monday.
Dealers sold 3.20 lakh passenger vehicles in July as compared to 2.90 lakh in the corresponding period last year. In fact, vehicle sales across categories saw rise taking the overall auto sales up by 13.84 per cent (YoY) to 20.34 lakh units.
While this calls for cheer, the dealers are still dealing with the high inventory that built up in the previous months. The report highlighted the continued presence of high inventory levels at 62-72 days (turnaround time) and valued at Rs 73,000 crore, as a cause for concern. It shows the mismatch between the wholesale dispatches and retail sales, indicating that the demand recovery is not keeping pace with vehicle production.
"This is a cause for concern, as high inventory levels mean a high burden on dealers to service the inventory carrying cost, which can be as high as 20-25 per cent of the total cost," said Rajat Mahajan, Partner, Deloitte India.
"FADA urges PV original equipment manufacturers (OEMs) to be vigilant about potential dealer failures due to these high inventory levels. It is also crucial for the RBI to mandate financial institutions to implement stringent checks before releasing inventory funding, preferably requiring dealer consent or collateral to prevent the escalation of NPAs", the Federation’s president, C S Vigneshwar, rallied.
Meanwhile, in a reflection of the revival of the rural economy, the two-wheeler (2W) sales posted a double digit growth of 17 per cent YoY to 14,43,463 units in the month of July. Likewise, on YoY basis, three-wheelers (3W) and commercial vehicles (CV) grew by 13 per cent and 6 per cent in the same month. But the tractors continued to underperform, falling by 12 per cent.
Sequentially, three-wheelers (3W) led the segment by growing 17.15 per cent, followed by PVs (13.7 per cent), CVs (10.05 per cent) and 2Ws (4.91 per cent), all posting the growth. Tractors, whose sales growth reflects a healthy rural economy, saw a 12.59 per cent increase, reaching 79,970 vehicle sales.
"The improvement in retail sales, both sequentially and YoY basis, can be attributed in part to the weak offtake in previous months. With the pickup in monsoon precipitation and expectations of improved rural demand, retail sales have also shown an improving trend," said Rohan Kanwar Gupta, Vice President and Sector Head - Corporate Ratings, ICRA.
"Even as underlying demand drivers remain steady, a high base coupled with waning replacement demand is expected to lead to a modest growth of 3-6 per cent on a YoY basis in the current fiscal", he added
"We expect the PV segment to grow at 2-4 per cent YoY in the current fiscal", said Som Kapoor, Partner and Future of Mobility Leader, EY-Parthenon.