Jan 10, 2008|
Outlook on the Indian auto sector
Whichever way you look at it, rising disposable income, lowering age of first time car users, shorter replacement cycles or above all, lower car penetration, one thing cannot be denied and it is the fact that the Indian passenger car industry will continue to grow at a robust rate in the long term. As per SIAM (Society of Indian Automobile Manufacturers), the domestic passenger car industry is likely to grow at a CAGR of 10% between FY07 and FY10 and we believe that the growth rate arrived at by SIAM will atleast be sustained if not overtaken. Furthermore, the percentage of first time car buyers in India as a percentage of total buyers is a dismal 31% as compared to 81% in China. Also, in India, close to 27 m two-wheelers were sold in the last five years and even if a small percentage of those buyers upgrade to cars, the incremental demand will receive a big boost. On account of all these factors, we believe that a long-term growth rate in higher single or lower double digit is very much within the realms of possibility.
The same holds true for both the two-wheeler as well as the commercial vehicles segment. While the latter is a play on India's ever improving road infrastructure and hectic pace of construction activity, on can ride the former story on the back of favorable demographics and higher disposable incomes.
India's domestic passenger car market stands at a little below 1.5 m cars today but is populated by all the major global companies. For companies that haven't tested the waters yet, indications are that most of them will soon jump into the fray sooner or later. Thus, with so many brands already present or on the verge of making their Indian debut, competition in the future is likely to intensify. However, unlike in other developing countries like China, there hasn't been a mad scramble for capacity creation in India and this should keep carmakers with decent volumes profitable. But we would also like to add that the margins that the current market players enjoy might be under pressure, as manufacturers will now have little headroom to increase prices.
On the two wheelers front, the top three players currently lord over the market with more than 90% of the market being shared amongst them. Here, unlike the passenger car industry, there is no major threat from newer players but price wars that were initiated a few years back are likely to continue. Further, with the companies spending ever rising amount of money on new product development and promotion, margins are likely to remain under pressure in this segment as well.
Like the two-wheeler segment, the commercial vehicle industry too has the luxury of consolidation currently. But unlike the two-wheeler segment, the competition here is only going to intensify as frustrated with low growth elsewhere, international majors have started eyeing high growth potential markets like India. However, most of the international players have preferred the JV route and wisely so. The segment currently is going through a structural shift where demand for both high tonnage as well as sub one-ton vehicles is gaining ground. Thus, while the international majors boast mostly of technology suited for high tonnage vehicles, the market for which is currently small, they will have to rely on their Indian partner for low tonnage needs. Plus, there is the added advantage of the Indian partner bringing its local knowledge to the partnership. This segment is likely to witness a lot of action in the coming months, provided interest rates remain attractive. Among all the segments, this is the segment that is most sensitive to interest rates.
More Views on News
Aug 14, 2017
Tata Motors Ltd disappoints again for both India and JLR business. Management commentary indicates a slow year ahead.
Aug 2, 2017
GST realted cost impacts Margins, Management expects good year ahead.
Aug 1, 2017
Good Recovery in the Scooters market, expects pick up in exports too.
Aug 1, 2017
New Export Markets picking up, Management expects good recovery in domestic Three wheeler market.
Jul 6, 2017
Ends the year on a Flat note. Expects good recovery in the exports market.
More Views on News
Aug 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
Aug 10, 2017
Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 10, 2017
Bitcoin hits an all-time high, is there more upside left?
Aug 16, 2017
Ensure your financial Independence, and pledge to start the journey towards financial freedom today!
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407