Oct 14, 2000|
Infrastructure to unlock future potential
The automobile sector has no reasons to smile. All segments of the sector, besides motorcycles are facing a slowdown in the current financial year. This is due to a slump in demand across all segments: industry, agriculture and trade. Freight activity is much lower as a result. The freight rates have been recently revised up by 10-15 percent, as a result of the diesel price hike. This however will not act as an incentive for fleet operators to expand their fleets as overall demand is languishing and they are already faced with excess capacity.
The Centre for Monitoring Indian Economy (CMIE) and the Reserve Bank of India (RBI) have recently revised their economic forecasts downwards for the current financial year. The agricultural sector is expected to have a second consecutive year of poor crop produce due to uneven distribution of the monsoons. The index of industrial production too has slackened over the past couple of months. Hence the demand prospects for the sector are expected to remain dull in the second half of the current financial year.
Besides the above demand side concerns, the automobile industry will be faced with higher competition post April 2001. Under WTO regulations, imports will be permitted at much lower import duties. This would act as a threat to domestic automobile manufacturers as world class cars would now be available at cheaper prices in India.
|(No. of units sold)
Commercial vehicle (CV) sales in the current year have slowed down considerably. For the first five months medium and heavy vehicle volumes fell by 13 percent year on year (YoY). The impact of higher sales tax on vehicles affected the margins of fleet operators. There are no signs of an improvement in the heavy commercial vehicle industry. However demand for light commercial vehicles (LCVs) has fared well and went up 13 percent YoY during this period. This can be attributed to higher demand from the metro cities as trucks are not permitted during business hours.
In the utility vehicles (UV) segment all but two players saw a decline in volumes for the period April - August 2000. The two exceptions were Toyota's Qualis and Telco's Sumo variants. The urban utility market has expanded since the launch of the Toyota Qualis as many car users have turned buyers. For the first five months UV volumes grew by 8 percent.
|April - August 00
||% change YoY
|M & HCVs
|M & M
In the current year, the passenger car market too has reported a slowdown, and sales have been stagnant over the past couple of months. The mid sized segment did better in the past few months, with Ford and General Motors leading the pack. However at the premium end, companies continued to face difficulties in increasing their volumes.
Price hikes in the car segment cannot be ruled out in financial year 2001 as companies are likely to incur significant costs to make their products compliant with emission norms. Infact, many companies have already announced price hikes in the passenger car segment to counter the increase in costs. Besides, the depreciation in the rupee too has added to higher import bills for many of the multi-national car companies. Hence they do not have much choice.
In the two wheeler industry, scooters continued to face a decline in volumes while motorcycles enjoyed buoyant growth. For the first five months scooters declined by 16 percent, motorcycles grew by 28 percent and mopeds grew by 7 percent. The consumer preferences of motorcycles over scooters continues due to the fact that the rural economy has done very well in the past few years. As the monsoons have been deficit in certain states, incremental rural incomes would be affected for the next year. Hence it is likely that growth rates could dip for the motorcycle industry in financial year 2002.
Two wheeler market share swaying towards motorcycles
However the future outlook for the automobile sector is not that bleak, keeping in mind that it is a cyclical industry with its ups and downs. Taking a more positive view the automobile sector will benefit from infrastructure development in the country. Growth in infrastructure holds the key to unlock the potential of India's CV segment. If efforts are made seriously towards building of roadways and ports, the long term prospects for this sector definitely look bright. Infrastructure development will lead to an increase in the level of business activities as access to even remote places will be easier.
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 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 4, 2017
The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
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 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: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407