See, how demonetisation is singeing: Auto sales, PMI data show acute pain

NEW DELHI: Tepid November auto sales numbers, likely slow growth in monthly cement dispatches as suggested by channel checks and a drop in manufacturing PMI suggest the worst fears about the damage from demonetisation have come true!

Tata Motors on Thursday said its domestic sales of passenger and commercial vehicles fell 28 per cent in November to 33,274 units, down 28.41 per cent from 46,480 units sold in October. Maruti Suzuki, India’s largest carmaker, reported sales of 126,325 units in November, a mere 2.06 per cent growth over 123,764 units sold in October. M&M reported a 38.8 per cent sequential slump in sales at 29,814 units in November.

Also on Thursday, official data showed the seasonally-adjusted Nikkei India Manufacturing Purchasing Managers Index dropped from a 22-month high of 54.4 in October to 52.3 in November, even though it still showed expansion.

Brokerages said cement companies are expected to report weak cement dispatch numbers for November.

Yet they say one needs to wait for a few months to gauge the real impact of demonetisation, as unlike 2015, Diwali was observed in October this year and one should factor that in the low November volumes. Besides, even if cement dispatches data shows a drop, they may take time before any plunge happens should the pain of the cash crunch lingers on.

“Our interactions with two- and four-wheeler dealers across regions indicate that the decline in sales has moderated to 20-30 per cent YoY versus 60-70 per cent YoY dip seen immediately after demonetisation. Regional disparities are worth noting: North has been affected the most and South the least due to higher card/cheque payment facilities available in the latter,” brokerage Edelweiss Securities said in a note.

“Most dealers expect demand to normalise over the next 2-3 months, but cash supply in the system remains a key monitorable. Two-wheeler and four-wheeler volumes are expected to recover faster in the urban belt compared with the rural belt given the high share of salaried class and banking habits in the former, barring Delhi. We are most positive on Eicher Motors (Royal Enfield) followed by Maruti Suzuki,” the brokerage said.

While cement companies are yet to announce dispatches numbers, overall volumes remained at around 800 kilo tonnes in November, at par with previous month. All India cement prices remained flat at Rs 312 per bag in November compared with October. Puneet Dalmia, MD at Dalmia Cement, noted that when a house is in construction, the investment is already planned and a budget in place.

“Typically, you do not want to leave a house half-built and then stop construction or repair work. So, November numbers should not be extrapolated into the future to feel the real impact of demonetisation. Overall, I think we have not seen a big impact so far at an overall level though we have seen some impact where there is a high rural and a high cash economy with low banking penetration,” Dalmia said.

Siddhartha Khemka, Head of Equity Research, Centrum Broking, said he was cautious on the cement sector.

“Petcoke prices have risen sharply in the past couple of months. That, coupled with the demonetisation, is likely to impact the construction space, especially the housing sector. That can have an impact in the Q3 numbers. Somehow, the South India-focused companies have done well. Cement prices there have been relatively resilient compared with the players in the North. One can look at some of the south-based cement players,” he said.

In the consumer durables space, Edelweiss Securities’ channel checks indicate a weaker H2FY17 for most electrical (fans, geysers, cables) and consumer durables (ACs, kitchen appliances) companies, implying YoY dip across its coverage universe.

“A sustained slowdown would force companies to resort to discounts/aggressive promotional schemes to push dealers for higher volumes given the higher sensitivity of volumes to earnings, apart from select production cuts,” it said.

Footfalls seem to have declined at malls and showrooms and purchase of non-essential items has been lower, UBS said in another note.

There has been no issue in availability of FMCG essentials, it said in a note.