Auto industry growth to accelerate 10-12% in 10

Written by fe Bureaus | Chennai | Updated: Jan 30 2010, 04:14am hrs
The Indian auto sector is likely to witness an overall growth of 10%-12% in sales during 2010 and a faster recovery in expected in passenger vehicle (PV) volumesof 12%-14%compared with 5%-6% for the commercial vehicle (CV) segment. The positive outlook for demand could result in a sharp increase in capex plans, which could offset the positive impact on credit profiles of higher volumes and lower inventories, said Fitch Ratings.

The trend should fall in line with the improvement in the domestic economic environment and improved availability of credit. Although domestic sales volumes are expected to recover, exports are likely to remain an area of concern due to the slowdown in global automotive markets and the expiry of scrappage incentives for replacing older vehicles (as were offered for PVs in 2009). PV sales began to improve from June 2009 and CVs from October 2009.

The PV rebound has been supported by an improving liquidity scenario and restoration of consumer confidence; modest growth in industrial production, together with the government stimulus, has brought about stability in CV sales, though at lower levels than for PVs.

Domestic CV sales grew by 22.3% during April-December 2009 compared with same period in 2008, building on the recovery in demand beginning Q4 09. However, growth trends have distinctly varied within the CV segment - depending on the tonnage capacity and end-use, as light commercial vehicles (LCVs) have been able to maintain their ground while medium and heavy commercial vehicles (M&HCVs) continued to face pressure due to the decline in industrial output.

The M&HCV segment is now stabilising with the higher industrial production, while the LCV segment is showing a more rapid recovery. Fitch expects the full-year 2010 numbers to reveal moderate growth in the range of 5%-6% for domestic sales, with the first few months being driven by regulatory guidelines pertaining to fiscal benefits and less stringent emission norms.

The agency believes that the polarisation in the CV market should continue, with higher growth rates for the lower and heavier ends of the spectrum. This is also evident from the capacity addition plans of original equipment manufacturers (OEMs), wherein most of the capacity is being added in the LCV segment (less than 1.5 tonne gross vehicle weight) by Tata Motors Limited and Mahindra & Mahindra Limited. The heavy range of trucks is receiving investment essentially from new entrants such as Daimler AG, the Nissan Motor Company Limited-Renault SA-Ashok Leyland JV and the Mahindra & Mahindra-International Truck & Engine Corporation JV. Export volumes should remain under pressure, as significant international capacity is lying unutilised.

There was an easing in late-2009 in the decline of freight volumes and higher fuel and financing costs, which contributed to the weak sales of CV manufacturers during 2009 as a whole.