Auto cos to gain from urban market revival

While the deficient monsoon has hit rural sales of auto companies, there is also some good news for them. Growth in the urban market is moving into the positive zone.

According to Arvind Saxena, senior vice-president (marketing and sales), Hyundai Motor India, growth in auto sales in the top 10 cities had been flat during the last eight months, but the situation is getting better. “Over the last two months, we have seen the trend reversing and growth entering the positive territory. Though it is very early to say how much we will gain from this revival, due to the lower base of last year, our gain will be substantial. The urban market contributes nearly 60% of our total sales,” Saxena said.

Maruti Suzuki, which controls about half the Indian car market, will benefit largely from the revival in this market. Almost 75% of the company’s sales come from cities.

Mayank Pareek, executive officer (marketing and sales), said there was 3% year-on-year (YoY) decline in urban-market sales in April to June. “However, from July onwards, we are seeing a positive trend and hope for a double digit growth from the tope 10 cities.

Except for Bangalore and Chennai, the response from the other 8 cities has been good. These two cities, being IT industry hubs, are still showing negative growth,” he said.

“Urban consumption is showing signs of a nascent recovery. Rural demand may be hit by a failed monsoon, but we reckon urban demand is on a sharp recovery curve. In July, domestic passenger car sales rose 31% YoY - benefiting from a low base, (last year, July marked the beginning of a slump in urban consumption) but they have still registered a 10% CAGR over June 2007,” said Citibank analysts Jamshed Dadabhoy and Hitesh Goel in a report dated August 18.

“The Maruti management noted that sales in the top 10 cities were in positive territory for the first time in many months, while volumes in the top 20 cities rose by 20% YoY. It remains fairly positive, given the improvement in vehicle financing and a recovery in consumer sentiment,” the Citi analysts noted.

The report also stated that while aggregate industry growth will be 5% CAGR over FY08-10; pent-up demand could positively surprise in FY11/12. The passenger cars segment grew by 13.47% in the April-August period and two-wheelers registered a 17.70% growth.

Two-wheelers major Hero Honda is also pinning hopes on a revival in the urban market.
Anil Dua, senior vice-president (marketing and sales), Hero Honda, said city-focussed offerings of the company are seeing robust growth.

“In the premium segment (150cc and above), we have grown by 37-38%, whereas the industry has grown by 30%. This segment has even grown better than the overall growth of 25%. A majority of our premium offerings sell in urban areas.”