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Passenger Vehicle Industry To Grow 9-10 per cent During FY18: ICRA

According to an ICRA study, the domestic PV sales will grow by a healthy 9-10 per cent during FY2018 and between 9-11 per cent at a CAGR over the next five fiscals

Photo Credit : Reuters


The Indian passenger vehicle (PV) industry is likely to consolidate on its growth path for the fourth year in a row since FY2014, the year when it last witnessed a blip.

According to an ICRA study, the domestic PV sales will grow by a healthy 9-10 per cent during FY2018 and between 9-11 per cent at a Compounded Annual Growth Rate (CAGR) over the next five fiscals.

Subrata Ray, Sr. Group Vice President, Corporate Sector ratings, ICRA says, “Industry’s long-term prospects remain favourable given the low penetration levels and increasing disposable income.” 

 “The overall macroeconomic indicators too remain favourable with GDP growth expected at 7.2 per cent in FY18e, normal monsoon expectations which will boost rural income and the price cut post GST that will provide impetus to the industry. This apart, the low cost of car ownership due to falling interest rate and subdued fuel prices will help.”

The outlay for 7th pay commission and the relative high levels of financing penetration in this industry compared to other sub-groups like two wheelers supported demand momentum despite demonetisation related impact in Q3FY17. PV sales could have registered healthy growth in Q1FY18 as well but impending GST and subsequent pricing uncertainty fizzled out wholesale demand in Jun-17. Also, dealers were busy clearing inventory as tax off-set was not available for certain components.

However demand in July 2017 registered healthy growth riding on recovery in domestic wholesale dispatches, underlying robust demand drivers and inventory re-stocking by dealers. Impending increase in cess from 15 per cent to 25 per cent on larger vehicles poses challenge and could derail demand momentum in the interim.

Another key area was double digit export growth (+13.8 per cent) during Q1FY18; the same contributed about 20 per cent of total wholesale volume sales during FY17 and Q1FY18, with Ford, General Motors and Volkswagen emerging as the key growth drivers.

Ford registered the highest of export growth at 54.4 per cent in volume during Q1FY18, with it PV car segment (Figo/Aspire) doubling growth whereas Ecosport (UV) volume grew by 16.0 per cent. PV exports growth may be healthy in the medium term with Suzuki’s and Ford’s Gujarat units becoming operational and FCA’s Jeep exports plan to all right hand drive market.

Volume growth over last few quarters is primarily driven by the compact Utility Vehicle (UV) segment, the fastest growing industry sub-segment with OEMs constantly tapping changing customer preferences, in line with the trends across various developed markets. As these compact UVs are generally priced close to mid-sized cars, the mid-sized segment is facing stiff pressure and some demand shift. The compact cars and super compact segment too are witnessing some cannibalization from entry level compact UVs.

ICRA expects the UV segment to outperform overall industry growth in the near to medium term given shift in customer preference towards UVs and influx of new models.

In terms of PV market shares, Maruti Suzuki India Ltd (MSIL) with 50 per cent share continues to be the leader. Over the last five fiscal as well as in Q1FY18, MSIL outperformed underlying industry growth. Contrary to existing trends MSIL is helped by new entrants in market expansion wherein the company launched new models to capture the expanded market.

MSIL’s Brezza is the best-selling UV since last 12 months and this has displaced Mahindra & Mahindra as India’s largest UV manufacturer in Q1FY18. Given strong product pipeline (new swift, S-Cross) as well as dealership expansion plans, MSIL is expected to sustain its solid market position in domestic market.

The cumulative 80 per cent market share of the top five players should remain unaffected in the medium term. Low volume players who face profitability pressures may resort to leveraged capital or financial support from parent company to fund losses and capex requirements.

However they will be able to offset these by capitalising on labour arbitrage in the Indian market and focussing on realigning their domestic facilities as an export hub for their small cars globally.

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