Two-wheelers, passenger vehicles premiumisation on rise; tractor sales dwindle: Report

Auto retail shift: Retail growth in the automotive sector is anticipated to be driven by premiumisation in the two-wheeler (2W) and passenger vehicle (PV) segments, while tractor and commercial vehicle (CV) retails are expected to decline due to festive mismatch and seasonality, analysts said.

According to insights from leading channel partners, there's a sustained recovery in demand for two wheelers (2Ws) despite challenges faced just before the Holi festival, brokerage firm Motilal Oswal said in a note. 

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March 2023 set a high base due to other festivals like Navratras and regional celebrations, resulting in a challenging comparison. Nonetheless, the 2W segment is forecasted to achieve a retail growth of 10-12 per cent year-on-year (YoY) for March. 

In the passenger vehicles (PV) segment, retail growth is expected to be in the range of 3-5 per cent YoY, propelled by stable demand in utility vehicles (UVs) and compressed natural gas (CNG) variants. 

On the other hand, medium and heavy commercial vehicles (MHCVs) are anticipated to decline by 5-7 per cent year-on-year (YoY), while light commercial vehicles (LCVs) are expected to remain flat, analysts highlighted. 

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Tractors are projected to witness a retail decline of 7-9 per cent YoY, with commercial tractor retail demand seeing a more notable drop of 20-23 per cent YoY.

Looking specifically at March 2024, dispatches are estimated to grow by 12 per cent, 16 per cent, and 18 per cent YoY for 2Ws, PVs, and three-wheelers (3Ws), respectively, while commercial vehicles (CVs) and tractors are expected to decline by 7 per cent and 18 per cent YoY, the Mumbai-based brokerage said.

In the 2W segment, retail sales have remained steady in March and are likely to grow by 10-12 per cent YoY, with uniform growth observed across regions. Despite Gudi Padwa, a major festival for auto retailers in Maharashtra, falling in April this year instead of March like last year, signs of pre-bookings for the upcoming festival month are evident. 

Notably, feedback on Hero MotoCorp’s Xtreme 125R indicates positive initial responses, with dealers quoting a waiting period of one month due to higher fuel efficiency compared to rivals.

Image Credits: Hero MotoCorp

For PVs in March 2024, retail growth is expected to be driven by healthy demand in the UV segment, although inquiries and bookings have slowed down due to state elections and festival mismatches. Entry-level demand remains under pressure, leading to increased discounts, particularly for certain models like MSIL’s Grand Vitara, brokerage firm Motilal Oswal said. 

In the CV segment, MHCV retails are projected to decline by 5-7 per cent YoY, with subdued demand across various sectors expected to pick up in the second quarter of fiscal year 2025. The upcoming Lok Sabha elections have contributed to subdued overall demand, although bus demand remains healthy. Large fleet operators are benefiting from higher discounting.

Meanwhile, tractor retail sales in March 2024 are expected to decline by 7-9 per cent YoY, with agricultural demand faring better than commercial demand. Delayed trolley registrations by the Regional Transport Office (RTO) department have negatively impacted commercial demand in certain states.

While the PV segment anticipates improved earnings growth driven by better product mix and increased sports utility vehicles (SUV) volumes, the 2W and CV sectors are expected to witness varied performance in the near term, brokerage firm added.