Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 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.
Passenger cars: Transition underway - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Oct 6, 2001

    Passenger cars: Transition underway

    Starting from the good old days of Ambassadors' and Premier Padminis' to fifth generation Accords, the Indian passenger car segment has come a long way. In this article, we look at some crucial aspects of the industry and its growth potential.

    If one were to look at the Indian passenger car segment, Maruti Suzuki (the joint venture company between Indian government and Suzuki of Japan) dominates the Indian scene. Maruti had a commanding 58% market share in FY01 followed by Hyundai, which has a 15% market share. Hyundai entered into the Indian market barely two years ago and came as a breath of fresh air to the small car segment, hitherto dominated by Maruti. Telco, which recently forayed into this segment, has an 8% market share.

    The passenger car segment can be broadly divided into four sub-categories. Segment-A consists of Maruti 800 and Ambassador, Segment-B include Zen, Hyundai Santro and Tata Indica, Segment-C has the likes of Hyundai Accent, Honda City & Mitsubishi Lancer and Segment-D i.e. the premium segment that is dominated by Mercedes.

    The new players are concentrating on the B, C and D segments. Hyundai, Honda, Mitsubishi, Mercedes and Fiat have all launched models addressing the aforesaid segments. The reasons are multifold. One is the dominant presence of Maruti 800 in the A segment. Hyundai, Telco and Daewoo launched models in the B segment in an effort to upgrade the A segment buyers.

    Budget 2002 also had something for auto majors to cheer about. The withdrawal of special excise duty (8%) has lowered excise duty on scooters, motorcycles and passenger cars (excise duty on passenger cars was reduced from 40% to 32%). Though auto companies passed on the benefit to the consumers initially, prices were raised across the board towards the end of 1QFY02 (remember, auto companies had heavily invested in complying with emission norms last year).

    In an effort to increase foreign participation in the country, the foreign direct investment limits have been raised to 100% through automatic approvals compared to 74% currently. The minimum foreign equity rules have also been relaxed. From US$ 250 m minimum foreign equity requirement for cars/MUVs, the new limit has come down to US$ 100 m. This is expected to benefit the small-scale manufacturers who cannot afford technology to upgrade manufacturing facilities. A typical example could be the auto ancillary segment. With globalisation setting across the automobile segment and consolidation being the key in the auto ancillary segment, the supplier base is likely to be divided into three categories. Category one vendors (for OEMs) would outsource a key portion of their requirements from the category two and category three vendors. The category one player will infuse capital and supply technology to the smaller players. Thus both the players would gain from higher efficiency.

    The FY07 household scenario...
    (m) Rural Urban Total
    Very rich 1.6 4.5 6.1
    Consuming class 47.3 43.6 90.9
    Climbers 63.3 10.7 74.0
    Aspirants 14.7 0.7 15.4
    Destitutes 12.2 0.5 12.7
    Total 139 60 199.1
    Source: NCAER

    The recent report on households in India by the National Council for Applied Economic Research throws some interesting facts. First let us look at the 1994-95 scenario. The very rich households as a percentage of total households stood at 0.6% and the consuming class, the key section of the population, as a percentage of total households stood at 17.4%. But NCAER expects a drastic change in the population pattern in the coming years. The consuming class as a percentage of total households is expected to touch 45% by FY07. Given the current penetration levels of passenger cars and utility vehicles, going forward, one can expect a sharp rise in demand. Utility vehicles (UVs), which hitherto were looked upon just as a transportation vehicle, are being increasing preferred by middle class families. Given this backdrop, the Indian automobile sector is poised to move into higher growth trajectory in coming years.

    Changing dynamics...
    (% of total) FY95 FY07
    Very rich 0.6% 3.1%
    Consuming class 17.4% 45.7%
    Climbers 29.2% 37.2%
    Aspirants 24.9% 7.7%
    Destitutes 27.9% 6.4%
    Total 100.0% 100.0%
    Source: NCAER

    However, the need for the hour is to boost growth of the economy. We have been growing at Hindu growth rate for nearly three years now. The road development program initiated by the Prime Minister is a step in the right direction. We need more of such measures if India has to emerge as an economic powerhouse of Asia. Even Mr. Ratan Tata, the Chairman of Tata Engineering, vouches for this. However, merely initiating programs is not enough, the government should bite the bullet to implement them.

    With QR restrictions being lifted with effect from April 2001, government has given a go-ahead for import of second hand vehicles. However, the import duty on such cars was set at 105% (3 times the peak rate of 35%), for which the effective duty works out to over 180%. This has forced multinationals companies to rethink their import strategy. Increasingly companies are planning to import vehicles through semi-knocked down (CKD) route for which customs duty currently stands at 35%.

    It is apparent that though the pace is slow, change is taking place. Domestic companies would have to fight a tough battle going forward in order to keep their shares from eroding. However, for Indian consumers, the ride has only just begun.



    Equitymaster requests your view! Post a comment on "Passenger cars: Transition underway". Click here!


    More Views on News

    Tata Motors Ltd: Another Disappointing Quarter, Management fails to Perform! (Quarterly Results Update - Detailed)

    Aug 14, 2017

    Tata Motors Ltd disappoints again for both India and JLR business. Management commentary indicates a slow year ahead.

    Maruti Suzuki Ltd: Bumpy First Quarter. GST dents Margins! (Quarterly Results Update - Detailed)

    Aug 2, 2017

    GST realted cost impacts Margins, Management expects good year ahead.

    Hero Motocorp Ltd: Riding on the Scooters Growth, Maintains Margins! (Quarterly Results Update - Detailed)

    Aug 1, 2017

    Good Recovery in the Scooters market, expects pick up in exports too.

    Bajaj Auto Limited: Recovery in Exports but Domestic Disappoints! (Quarterly Results Update - Detailed)

    Aug 1, 2017

    New Export Markets picking up, Management expects good recovery in domestic Three wheeler market.

    Bajaj Auto Limited: Finishes the Year with Headwinds. Poised for a Recovery Ahead? (Quarterly Results Update - Detailed)

    Jul 6, 2017

    Ends the year on a Flat note. Expects good recovery in the exports market.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    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: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 17, 2017 (Close)