Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Auto finance: Volumes see a turnarund - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Auto finance: Volumes see a turnarund

Aug 16, 2010

The Indian auto sector has come a long way from the lows of FY09. Auto financing companies, with derived demand from auto sales also showed improved performance. With this in mind we decided to look back into the past two years' performance of leading auto finance companies. Indian industry witnessed a significant slowdown in FY09, with sluggish GDP growth. The economy was reeling from the after effects of the global recession. Auto sales were down, especially those of commercial vehicles, which were 22% lower than in FY08. All other segments of the auto sector also saw either flattish growth or marginal declines. This directly impacted auto financing companies which saw slow loan growth and depressed stock prices.

FY10 also started off on the back foot. Concerns about the sector and economy were still prevailing. A delayed and below normal monsoon also did not help matters. The commercial vehicle financing sector which is highly dependent on the overall economic situation and agricultural growth was the biggest drag.

1HFY10 however saw a turnaround in the space with real GDP growing by 7.9%. By the end of the year, FY10 turned out to be a stellar year for auto companies. Volumes recovered sharply and strong double digit growth was seen across all segments. Passenger vehicle volumes grew by 26%, commercial vehicles by 38%, and tractors by 32%. Even the 3-wheeler and 2-wheelers segments saw above 20% growth. Huge volume growth was very beneficial to auto financing companies like Shriram Transport, Bajaj Auto Finance and Mahindra Finance.

Source: SIAM, Mahindra Finance FY10 annual report

Main drivers for this volume growth in FY10 were as follows:
  • Low fuel prices compared to the highs of 2008 helped reduce cost of owning and maintaining a vehicle
  • Consumer confidence was high with an improvement in income levels as well as better financing means
  • There was an advancement of purchases in 4QFY10, due to an expected rollback of excise duty
  • Accelerated depreciation of 50% on commercial vehicles, as part of the stimulus package announced by the government boosted demand
  • Low base effect of FY09, where most customers postponed purchases due to economic slowdown
The auto financing sector correspondingly saw a good recovery in FY10 after posting a 25% decline in disbursements in the previous year.

Good pick up in growth...
  Advances Disbursements
(Rs m) FY09 FY10 Change FY09 FY10 Change
Mahindra Finance 68,707 84,864 23.5% 62,812 89,154 41.9%
Shriram Transport Finance 179,535 179,650 0.1% 115,654 146,836 27.0%
Bajaj Auto Finance 23,704 40,258 69.8% 24,509 45,851 87.1%
Source: Company annual reports

Future outlook CRISIL estimates that non-bulk freight traffic, the primary driver of commercial vehicle sales is said to grow by 12-13% in the coming year (FY11). Increased industrial production as well as a good monsoon this year will definitely boost sales of tractors and other such vehicles. Passenger vehicles and 2-wheelers have also seen good growth so far in FY11. Construction equipment financing is also going to be a new driver for growth, especially in India which has large infrastructure development needs. It is expected to grow by 25-30% over the next few years.

However, increased interest rates will put pressure on the demand for financing of auto loans. The RBI does not seem to be done with its withdrawal of monetary stimulus as yet. Rising interest rates will also increase delinquencies. Hike in prices of fuel, post the deregulation of petrol and diesel prices may put an end to the ‘honeymoon period' for the industry.

Equitymaster requests your view! Post a comment on "Auto finance: Volumes see a turnarund". Click here!


More Views on News

PRIME SECURITIES Announces Quarterly Results (1QFY20); Net Profit Up 7.7% (Quarterly Result Update)

Aug 20, 2019 | Updated on Aug 20, 2019

For the quarter ended June 2019, PRIME SECURITIES has posted a net profit of Rs 30 m (up 7.7% YoY). Sales on the other hand came in at Rs 106 m (up 9.5% YoY). Read on for a complete analysis of PRIME SECURITIES's quarterly results.

HDFC Announces Quarterly Results (1QFY20); Net Profit Up 46.3% (Quarterly Result Update)

Aug 14, 2019 | Updated on Aug 14, 2019

For the quarter ended June 2019, HDFC has posted a net profit of Rs 32 bn (up 46.3% YoY). Sales on the other hand came in at Rs 130 bn (up 30.7% YoY). Read on for a complete analysis of HDFC's quarterly results.

PRIME SECURITIES 2017-18 Annual Report Analysis (Annual Result Update)

May 8, 2019 | Updated on May 8, 2019

Here's an analysis of the annual report of PRIME SECURITIES for 2017-18. It includes a full income statement, balance sheet and cash flow analysis of PRIME SECURITIES. Also includes updates on the valuation of PRIME SECURITIES.

TATA INVEST. CORP. 2017-18 Annual Report Analysis (Annual Result Update)

Feb 4, 2019 | Updated on Feb 4, 2019

Here's an analysis of the annual report of TATA INVEST. CORP. for 2017-18. It includes a full income statement, balance sheet and cash flow analysis of TATA INVEST. CORP.. Also includes updates on the valuation of TATA INVEST. CORP..

CreditAccess Grameen IPO: Should You Apply to this Interesting Microfinance Play? (IPO)

Aug 7, 2018

Should you apply to the IPO of CreditAccess Grameen Ltd?

More Views on News

Most Popular

This 60-Year Old Smallcap Company Could Be Our Next Recommendation (The 5 Minute Wrapup)

Aug 12, 2019

My experience at the recent AGM of this smallcap company which has financials of any FMCG major.

Interest Rates Are Low. Buy Solid Dividend Stocks Instead (The 5 Minute Wrapup)

Aug 13, 2019

The dividends paid by these stocks are helpful when interest rates are falling.

Smallcaps that Will Outperform in the Market Rebound (Profit Hunter)

Aug 12, 2019

Only These Smallcaps Will Give Historic Returns in the Future.

My Top 3 Dividend Stocks to Buy Now (Profit Hunter)

Aug 19, 2019

As markets continue to rattle amid earning season, upcoming elections, volatile crude price and US China trade war, it's a great idea to add some stability to your portfolio by adding dividend stocks.

Chandrayaan 2 Heads to the Moon and It's Good News for These Stocks (The 5 Minute Wrapup)

Aug 14, 2019

Why investors should take note of India's advantage as a low cost satellite launcher...


Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2019
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms