Accelerating the future
The Indian automobile industry is accelerating ahead like never before. Over the past five years Indian volumes have witnessed a quantum leap from 7.9 million vehicles per annum to 12.3 million vehicles per annum. The growth has been driven by 1) higher disposable income, 2) increase in rural demand and 3) easy finance availability. Yet, penetration levels continue to remain much below global averages. This leaves substantial headroom for further growth in volumes. The discerning Indian buyers are no longer tempted by just fuel efficiency or price advantage. Like a car slogan aptly puts it, they like to ‘Feel the Difference.’
Two-wheelers: the rural drive
The two-wheeler industry in India is primarily characterized by three major brands, viz Hero Honda, Bajaj Auto and TVS Motors (65.8% of the total two-wheeler FY10 volumes). While these players have presence in products ranging from 100cc to 250cc motorcycles, scooters and mopeds, a chunk of the demand still arises for the 100cc-125cc motorcycles. Off late there has been a strong pick up in demand for scooters and mopeds, where Honda and TVS Motors are emerging as major players. The competition intensity has been relatively weak in the two-wheeler space, which is expected to change in the medium term with entry of M&M and exit of Honda from Hero Honda. However, the pie of the two-wheeler demand is likely to increase further as rural demand witnesses a robust growth given a strong monsoon season, higher crop prices and rising non-farm income through government efforts.
Passenger cars: variety spicing up the space
Despite near doubling of annual passenger car sales from FY05 to FY10, the penetration of passenger cars in India is amongst the lowest in the world. This has attracted a lot of international large automotive players to a market, which was so far dominated by Maruti. That explains the flurry of launches from international players such as Ford, GM, Volkswagen, Nissan etc. In terms of product profile, 73% of demand still arises from the A2 category (900-1200cc). Cost arbitrage and improving quality of component supplies has led to India emerging as an export hub for small cars. We expect the domestic demand to remain strong on rising rural penetration and improving finance availability. Of course the growing middle-class also now aspires for cars beyond entry-point.
Commercial vehicles: economy driven growth
Substantial stress is being laid on building road infrastructure in the country, which would translate into an increase in road freight as a proportion to total freight in the country. This would propel demand for goods Commercial Vehicles (CVs). Further, the government has increased allocation for schemes aiming at fast track development of urban infrastructure – Jawaharlal Nehru National Urban Renewal Mission (JNNURM). Passenger CVs would be the key beneficiary here.
There is a strong correlation between the manufacturing activity and CV sales. Slowdown in manufacturing activity, unfavorable credit scenario and strained profitability for fleet operators had adversely affected the CV market during FY09. However, since then, IIP has recovered and witnessed a robust growth in H1 FY11 leading to robust recovery in CV volumes. IMF has estimated India’s GDP growth at 7.7% and 7.8% in CY11 and CY12 respectively, which is expected to be driven by a strong growth in manufacturing space thereby translating into robust demand for CVs.
The domestic market for CV is dominated by Tata Motors and Ashok Leyland. However, the competition is likely to increase with entry of new players such as Volvo, Nissan and M&M.
Prayesh Jain is AVP-Research at India Infoline and is an authority on the automobile sector.