Scripting A New Chapter
Indian motown is on an overdrive. The new-year saw Indian auto industry race past all previous records to set a new benchmark beating even the most optimistic growth estimates.
Fitch Ratings, an independent consultancy firm expects the Indian auto sector to witness an overall growth in sales of 10 to 12 per cent during 2010, with a faster recovery in passenger vehicle (PV) volumes of 12 to 14 per cent, compared with 5 to 6 per cent for the commercial vehicle (CV) segment.
But another independent analyst says government’s stimulus or bail out package announced last year, feverish expansion plans by auto majors resulting in launch of models across various price points, and ultimately the buy decision being made easy by the banks going soft on interest rates, would continue to fuel the auto frenzy in the country.
The passenger car market leads the surge this January across models signifying a fair amount of disposal cash availability and the willingness to splurge it. Car sales rolled on a record growth curve recording eleven straight months of growth since February 2009.
However, Fitch says the positive outlook for demand could result in a sharp increase in capital expenditure plans, which could offset the positive impact on credit profiles of higher volumes and lower inventories.
Said a Fitch analyst: “ The trend should fall in line with the improvement in the domestic economic environment and improved availability of credit. Although domestic sales volumes are expected to recover, exports may continue to be an area of concern due to the slowdown in global automotive markets and the expiry of scrappage incentives for replacing older vehicles (as were offered for PVs in 2009). PV sales began to improve from June 2009, and CVs from October 2009.”
The passenger vehicle rebound has been supported by an improving liquidity scenario and restoration of consumer confidence; modest growth in industrial production, together with the government stimulus, has brought about stability in commercial vehicle sales, though at lower levels than for passenger vehicles.
Consider the latest numbers: India’s biggest carmakers including Maruti Suzuki, Hyundai Motor, Mahindra & Mahindra and General Motors saw the highest sales during a month’s span in the domestic market at 81,087 units, 29,601 units, 28,998 units and 9,420 units respectively in January, compared with the same month last year. Homegrown auto major, third largest by sales, Tata Motors, too registered highest-ever sales of its cars at 22,707 units and second highest ever sales of commercial vehicles at 35,957 units in a month’s span during January.
Maruti Suzuki total sales (including exports) stood at 95,649 units, up 33 per cent from the year-ago period also the highest in a month. Senior auto executives are upbeat about the situation and believe that the growth push would continue through the year.
General Motor’s sales grew a storming 139 per cent, driven by small car models Spark and the newly launched Beat. The aggressively priced Beat clocked 2,825 units sale in the first month. The company said the model has
accumulated 10,000 bookings since its launch on January 4.
An independent analyst said the January sales were a result of a mix of factors including the possibility of a price hike post budget. Also, January means the first month sales meaning full tax benefits to consumers as also better re-sale prospects given the model year remained 2010.
The January growth has a bug ticket surprise as well: luxury cars joined the growth bandwagon registering very handsome sales. Merc sold 403 cars in January, compared with BMW’s 341 cars. Audi remained third with 306 cars sold during the month. Merc last January sold less than 100 cars thus leading the pack this year with a stellar growth.
Two-wheeler makers did not lag behind. Hero Honda Motors sales were higher by 23 per cent at 389,802 units in January, compared with the year-ago period, the thirteenth consecutive month of more than 3 lakh unit sales. TVS Motor Co. and Suzuki Motorcycle India sales also grew 35 and 93 per cent respectively.
Fitch says the commercial vehicle (CV) sales have remained more cyclical, owing to the closer linkage with economic activity. Typically, a period of two to three years of high growth is followed with a similar downward cycle to which the commercial vehicle manufacturers were exposed during 2008 and most of 2009.
Fitch auto sector report said, “As a result, improving industrial production and economic growth rates, coupled with a reversal of more than two years of downtrend are likely to spur a positive track for commercial manufacturers as well in 2010.
Domestic CV sales grew by 22.3 per cent during April to December 2009 compared with the comparable period in 2008, building on the recovery in demand beginning Q409. However, growth trends have distinctly varied within the CV segment depending on the tonnage capacity and end use, as light commercial vehicles (LCVs) have been able to maintain their ground while medium and heavy commercial vehicles (M&HCVs) continued to face pressure due to the decline in industrial output. The M&HCV segment is now stabilising with the higher industrial production, while the LCV segment is showing a more rapid recovery.
Fitch expects the full year 2010 numbers to reveal moderate growth in the range of 5 to 6 per cent for domestic sales, with the first few months being driven by regulatory guidelines pertaining to fiscal benefits and less stringent emission norms.
The agency believes that the polarization in the CV market should continue, with higher growth rates for the lower and heavier ends of the spectrum. This is also evident from the capacity addition plans of original equipment manufacturers (OEMs). The report said capacity was being added in the LCV segment (less than 1.5 ton gross vehicle weight) by Tata Motors Limited and Mahindra & Mahindra Limited as well.
Fitch said the heavy range of trucks is receiving investment essentially from new entrants such as Daimler, Nissan Motor Co. Ltd, Renault SA, Ashok Leyland Ltd, and the Mahindra & Mahindra, International Truck & Engine Corporation (ITEC) JV.
By K Anjna