E&Y, CARE bullish on auto recovery

Written by fe Bureau | New Delhi | Updated: Jun 30 2009, 07:00am hrs
Reports of sales of passenger vehicles in India doubling in the next five years could bring back confidence to auto manufacturers in the country, after almost a year of sluggish demand for passenger vehicles.

According to an Ernst & Young analysis, passenger vehicle sales in the country will grow at a CAGR of 12% to touch 37.5 lakh units by 2014 as against 18.9 lakh units at the end of 2008-09. While domestic market is expected to contribute 27.5 lakh units to the total tally, the remaining 10-lakh units would contribute towards exports.

Likewise, as per estimates by CARE Research, the domestic two-wheeler sales will grow at a CAGR of 8.8% by 2014 at 11.3 million units vis-a-vis 7.43 million units in 2008-09. However, the demand for two-wheelers will be weak for the next year with sales foreseen to grow by 6.7% in 2009-10 at 7.9 million units, it says. Indian industry is drifting towards a general monopolistic scenario wherein there will be large number of players selling similar products as against current oligopoly where we have fewer big players, Rakesh Batra, partner and national head (automotive practice), E&Y said.

Although exports are poised to grow significantly due to Indias fuel-efficient low-cost product range, there is an upside risk on exports as it is dependent on the recovery of the global markets, he added.

Stimulus packages announced by the government would prevent the market from a free fall and the benefits are expected to continue till assurance of sustenance of manufacturers is established. Further, the entry of ultra low-cost cars, like the Nano would increase the penetration level from the existing nine cars per 1,000. Moreover, just 65% of the installed capacity is being used (the global average is 64%), both national and global players are expected to add to the capacities.

The long-term growth drivers are in place, which is leading both international as well as domestic players to add to their capacities significantly, Batra said. Besides, E&Y said Indian makers with unutilised capacities stand to benefit in future as global auto are expected to consolidate their operations by reducing number of sites amidst shrinking demand.