In today's Finshots, we talk about a rebound in automobile sales and the AGR saga.


The Story

We finally have some good news coming in from the auto industry. The headlines read —

“After 6 months of slowdown, India’s largest car manufacturer Maruti Suzuki registered 17% growth overall sales led by a 20% jump in domestic sales. That’s 17% growth in sales compared to August last year.”

So does this mean automobile sales (at least passenger vehicles) are finally making a spectacular turnaround?

Well… Maybe not.

For starters, you have to remember that there’s been a lot of pent up demand in the system. Lockdown restrictions were eased in June. Dealerships started making headway in July and a semblance of normalcy returned to the mobility space only in August. So it’s natural to presume that some of this pent up demand finally found an outlet last month.

Also, data from the past few months show that second-hand vehicle sales have been growing faster than new registrations. The immediate explanation is simple. When dealerships are closed, people often resort to used-vehicles. But even as lockdown restrictions continued to ease, second-hand sales pipped new registrations quite handsomely (by about 4,00,000 vehicles in July). The only explanation then, is that people are selling old vehicles in a bid to shore up income i.e. these are distressed sales made to consumers seeking a bargain. So technically, if income levels are on the decline, we are unlikely to see any structural improvement of automobile sales in the long run.

Unless personal mobility takes off in a big way. Right now, people are sceptical of travelling in large groups. So you have a small sub-segment of the population that’s shying away from shared space mobility altogether and investing in a personal vehicle. And although this trend is likely to persist for the next few months, a mass-produced vaccine could upend the equation altogether. Meaning any real sustained resurgence in the auto space is unlikely to happen unless our economy (as a whole) rebounds in a massive way.


10 years to R̶e̶p̶e̶n̶t̶ Repay

Also in other news, it seems like the AGR saga is finally coming to a close. If you are new to this story, here’s our primer explaining what’s been happening over the past year. If you’ve already been following our coverage, know that the Supreme Court verdict on Tuesday offered some breathing space to telecom companies. But it didn’t absolve them of all responsibility either.

As it stands, the likes of Vodafone-Idea and Bharti Airtel have 10 years to pay back close to 1 lakh crores in dues. The telecom operators wanted 15 years. But considering the Supreme Court only recently asked them to furnish these dues in a matter of a few weeks, 10 years still look like a minor victory.

The only downside is that these telecom companies have very little wriggle room now. Consider Vodafone. Analysts estimate that the company can stay in business so long as ARPU climbs from Rs. 114 currently to Rs. 180 very soon. ARPU (Average Revenue Per User) tells you the kind of money Vodafone extracts out of each subscriber every month. Higher ARPU means higher tariffs (rate cards). So you’d be inclined to think Vodafone could solve all its problems by simply extracting a higher sum from their customers. But in a competitive environment, indiscriminate rate hikes will translate to lost subscribers. If you keep losing subscribers, you’ll have to keep bumping up the price for customers you still tend to. And that breeds a vicious cycle that might be hard to break. Hopefully, the likes of Vodafone can find the middle ground and stay in business for many years to come.

Until then…

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