Sector Update
15 Sep 2012


Upcoming Festive Seasons likely to rebound the Growth…
Automobile industry is one of the world's largest and fastest growing industries in India. India is second largest market for manufacturing two wheelers, 9th largest manufacturer of passenger vehicles (PV) and fifth largest manufacturer of commercial vehicles (CV) in the world. India is world's largest manufacturer of three wheelers also, which accounts for than 4.4% of India's Auto Industry by volume. This sector has witnessed great advances in terms of development, spread, absorption of newer technologies and flexibility in the wake of changing business scenario. Auto Industry has shown fast recovery from the financial meltdown of 2008 and from the negative growth in 2007-08, it has registered a robust growth of almost 26% in 2009-10 and around 27.45 % growth in 2010-11.
Segment wise two wheelers account for more than 76% of India's Auto Industry by volume, PV account for 16.25%, CV accounts for 4.36% and three wheelers accounts for than 3.39% of India's Auto Industry by volume.

Current Scenario
Indian automobile industry reported marginal increase in domestic car sales by 7% in July 2012, as demand affected by because of many factors such as increase in fuel prices, higher interest rates and labor unrest at Maruti's Manesar plant. Meanwhile motorcycle sales growth is now down to 5% in July while overall two-wheelers totted up 7.5% growth. Maruti's labor problems at Manesar, has impacted its sales figures in July, which will finally drag the entire car industry's sales once again. It has reported 40.8% decline in total sales for August at 54,154 units as against 91,442 units.

Further rise in Petrol prices may weaken the consumer sentiments, raising concerns of tough times in the festive season ahead. On the other side, higher interest rates also pressurized Indian automobile sector and it is now a big hurdle for the festive season. If banks will start regulating their auto loan rates, as they have started to with home loans, things expected to change. The reduction in interest rates will help the companies to lower the cost of manufacturing and product, thereby improving industry confidence. Apart from this, Weak monsoon is also expected to hit already weak auto sales, as crop loss will dent disposable income needed for auto purchase in the rural areas. It will primarily affect the sales of tractors, which constitute around 30% of total auto sales. However, total sales of commercial vehicles rose by 3.92%to 66,767 units from 64,248 units in the year-ago period.


Q1FY13 Trend
During Q1FY3, Indian auto industry has witnessed a slower growth, as sector crawls in terms of sales. In April-June 2012 quarter as per Society of Indian Automobile Manufacturers (SIAM) data, cumulative production increased by 7.10% over same period last year. The industry produced 1,746,840 vehicles in July 2012 as against 1,656,014 in July 2011. Utility vehicles grew strong, clocking 53% growth, while passenger cars grew 5.5% as compared to same period last year. The overall commercial vehicles segment registered 4.74% growth in April-June 2012 as compared to the same period last year, while medium and heavy commercial vehicles registered 12.75% fall. Light Commercial Vehicles grew at 18.02 percent during the period. Three-wheelers sales recorded marginal growth at 0.81% while two-wheelers registered a growth of 9.75% during April-June 2012. SIAM says during April-June 2012 overall automobile exports fell 4.03%.

During April-June 2012 overall automobile exports registered negative growth at (-4.03) percent. While Passenger Vehicles and Commercial Vehicles both grew by 9.14 percent. Two & Three wheelers declined by (-1.00) and (-39.23) percent respectively in April-June 2012 compared to the same period last year.


Monthly sales Performance - Only CV segment grew in Aug 2012...
In the month of August 2012, India's largest commercial vehicle maker Tata Motors and Mahindra & Mahindra, India's top utility vehicle firm, saw increase in sale. However, Maruti Suzuki, reported sharp decline due to labor unrest at Manesar plant. Maruti Suzuki, the Utility vehicle maker, Mahindra & Mahindra continued to see a good demand and reported increase in sales by 22% in August to 45,836 units. Its passenger vehicle (PV) sales were up 30% to 21,831 units and four-wheeler commercial vehicle (CV) sales rose 20% to 14,267 units. However, three-wheeler CV sales declined 3% to 6,004 units and trucks sold by the Mahindra Navistar joint venture slipped 2% to 724 units.


Meanwhile, Tata Motors' sales stood at 71,826 units in August, reporting a 12% year-on-year growth in total sales. Sales of its PVs were up 33% to 22,311 units, helped by over five-fold increase in Nano sales at 6,507 units. Sales of the Indica range also rose, however Indigo sales declined last month. Sales volume of Maruti Suzuki stood at 54,154 units in August, 2012 against 91,442 units in the same month of last year, therefore, registering a decline of 40.78%. However, on MoM basis, sales decline by 34.15%. Sales volume in the Mini segment registered a decline of 41.16% on YoY basis. In two wheeler segment Hero MotoCorp has reported total sales of 443,801 units in the month of August, 2012, registering a decline of 11.88% over the corresponding month in 2011, when the company had sold 503,654 units. TVS Motor Company, registered.


Diesel price hike might be a deadlock for PV...
Time has gone when most automakers were focused on petrol models and had separate production lines for vehicles running on the two fuels. Car makers now have to adjust as per the market demand as petrol cars now make up only 20 to 30% of total vehicle sales compared with more than two years ago. In the last two years, country's auto market has changed rapidly, with the share of petrol cars in total sales falling to 50 to 60% from 85%. In models with both petrol and diesel options, 70 to 75% of buyers are opting for the latter.


The main reason for this shift is widening gap in the prices of petrol and diesel. Since June 2010, when the government lifted its control over petrol pricing, oil marketing companies have increased the price of the fuel multiple times. In contrast, the price of diesel has been increased with the highest price of Rs 5 on 13th Aug 2012, however Govt wants to continue to subsidies the fuel as it has a direct impact on inflation because of its wide use in transportation and irrigation. While on the other hand, despite this step hike, petrol is still nearly 65% costlier than diesel. Despite the fact that the purchase price of the diesel models is higher, customers don't mind spending more due to higher fuel efficiency of diesel vehicles which makes operating expenses lower. These dynamic changes in the customers demand is resulting a new challenges for the industry.


New Launches & Up coming festive season would be a growth driver...
To accelerate sales that slowed to 7% growth in the first four months of the fiscal, automobile companies are expected to gear up for the festive season. As per the industry reports carmakers will roll out 30 cars across segments and markets, from new Maruti 800 to Jaguar XJL, this festival season to magnetize customers back to showrooms and revive a slowing market. Maruti Suzuki is currently is expected to launch the upcoming car in the Indian car market this year. The new Alto 800 LXI is anticipated to replace the iconic 800 car, which stayed as an Indian favorite for more than two decades. Reportedly, the upcoming small car will carry a price tag around Rs. 2.5 lakhs. As per the historical data, festive period brings light into the market as customer sentiments change during this time. With hopes of shedding interest rates and competitively priced vehicles, customers are expected to increase their demand in the coming time with new purchases. Two-wheeler makers typically dispatch 10% more units to dealers during the festival season.


Demand for Diesel cars like sedan & UV will drive the volume growth ...
Industry aims to introduce many cars coupled with various festive offers to increase the volume. According to industry sources new launches will include new Maruti 800, Mahindra Mini Xylo, Volkswagen UP!, Ford EcoSport, Chevrolet Sail and Tata Manza CS. This launch line-up is consists of small cars, hatchbacks, sedans and SUVs. However, this time the growth throughout the festive seasons will be driven by mainly demand for the sedan & UV segments, these segments has shown interesting growth of 15 and 57 percentage respectively in Aug 2012 compare to similar month of last year. This new trend of sudden increase in the demand for sedan & UV segments in which most of the models runs on the cheaper fuel diesel will help to revive the volume growth in up coming quarters.


The demands for diesel vehicles continue to outpace the petrol driven cars. However, what might change the market is a proposed tax on diesel vehicles. The industry is regularly opposing the tax that govt is mulling to impose on diesel cars. Though the government unexpectedly refrained from introducing the levy in its Budget in March this year, the option is still on the table. Will the diesel always remain cheaper than petrol? May be yes because it directly affects the agriculture and rural sector of India and on the other hand, if the demand trend continues automakers will struggle to fully utilize their installed manufacturing capacity of petrol cars. Therefore, companies have to find out other options like exporting cars to maintain the revenue from the petrol segment. While another way of reviving, demand for this segment is to improve the fuel efficiency of petrol cars.



After reporting a slower growth in past quarter followed by a recovery in august sales, increasing new launches would be cheering for things are looking promising for auto industry ahead of festive season. As a part of the BRIC block, Indian and Chinese auto markets has reported an upswing with Indian automobile market showing a 7% increase in its car sales in July 2012, under the review of sales recorded in year-ago period.

So Indian auto industry is seems to be ready to flatter the auto enthusiasts before the end of 2012 with the launch of exciting models. Considering the fact that Indian auto industry has recently witnessed a boom in the Utility Vehicle (UV) segment, it is expected to do well with the launch of new vehicles before the end of this year comprising offerings from different manufacturers. India is regarded as one of the fastest growing economies in the world and the monthly incomes of Indian consumers have also increased, which has raised their standard of living and purchasing ability. Starting from July this year, auto sector appear optimistic for the remaining part of calendar year. As per the SIAM report by 2017 the domestic industry is projected to sell 5.6 million vehicles while exports are to touch 1.3 million units.

Hence, during up coming quarter Automobile sector is expected to boost the volume and sales growth momentum. High interest rates will be a concern for the sector because of inflation, monsoon delays and global economic scenario, but companies are expected to maintain growth momentum with launch of new innovative and more fuel-efficient cars in forth coming periods.



Varun Gupta
Head - Research
Pashupati Nath Jha
Research Analyst
Vikram Singh
Research Analyst
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