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Growth dips post festive euphoria…
Volume engine pauses for breath…
The month post the strong festive season has seen an anticipated lull in
industry volumes with a 14.5% YoY increase and 16.3% MoM decline (on
a high base) reaching ~1.4 million units. This is the first time in FY11
when industry volumes have declined sequentially. This actually signals
that though consumer demand has been strong the seasonal impact on
purchases has started to set in. The volume growth of the industry till date
has been 29.2% with the passenger car (PV) segment growing by 25.6%,
commercial vehicle (CV) segment growing the fastest at 38.6% while the
largest segment, two-wheelers, is growing at 29.2% on a YTD basis. The
demand has continued to remain robust. This has led to strong interest
among various players across segments ranging from PVs to luxury buses
to launch various new models to garner a higher share of the increasingly
attractive domestic market pie.
Capacity expansion the buzzword for OEMs…
Auto OEMs have seen strong demand, which has been hugely structural
in nature pushed by higher rural incomes and increasing propensity to
spend on part of the urban counterparts. This has resulted in strong
expansion plans getting under way for many major players such as
Honda, which is expected to start a third plant in Andhra Pradesh along
with another plant that is under way in Rajasthan of capacity ~0.6 million
capacity. Similarly, commercial vehicle major Volvo is increasing the
capacity of the existing plant and setting up a new engine plant, which is
expected to have a capacity of 85,000 units.
Input prices continue to rise unabated…
Input prices have seen a consistently upward curve due to reasons
ranging from Chinese inflation to ample liquidity causing speculation to
production shortfalls due to natural factors. The steel, aluminium and
plastics prices continued to increase in the range of 20-50% on a YoY
basis mainly due to production cutbacks emerging from China on account
of increasing domestic inflation along with production constraints in the
rest of the world. Natural rubber prices have gone through the ceiling and
are hovering consistently around | 200/kg (~80% higher on a YoY basis).
This has mainly been driven by the shortage of production from Kerala in
the peak season as incessant rainfall has hampered tapping. Also, there
has been reduced production from Thailand as floods have affected the
southern zone, which accounts for ~80% of its total production.
Industry outlook
The industry is expected to grow at a CAGR of 13-15% in FY10-12E aided
by strong GDP numbers reflecting high economic activity, favourable
demographics and higher income levels. The major concerns, however,
are steep raw material prices and currency volatility, which could cause
serious concern to the whole value chain, going forward, as margins and
bottomline could shrink to a certain extent. However, commodity prices
could see some slowdown from Q4FY11 with the demand-supply
mismatch somewhat expected to ease out. With the actual consumption
driven growth continuing in the midst of price hikes and increasing
interest rates, the future demand scenario of the domestic market on a
longer term scale seems to be positive.
Latest events/news
• Hero Honda Motorcycle and Scooter India, a subsidiary of Honda
Motor Co, is now planning a third plant in Andhra Pradesh, with
an investment of | 1000 crore in a phased manner. In the first
phase, | 500 crore will come. Initially, the unit would manufacture
2,000 two-wheelers per month and gradually hike the capacity.
The company has a two-wheeler manufacturing plant at Manesar
in Haryana, with an annual production capacity of 1.55 million
• Toyota Kirloskar Motor has launched its sedan, Etios, marking the
company's entry into the highly competitive B-segment in India
within a range of | 4.96 lakh and | 6.86 lakh. The diesel engine of
the above would not be available till CY13
• The joint venture between Eicher Motors and Volvo Group will
invest | 800 crore over the next three years to increase production
capacity and set up a new engine plant of 85,000 units
• Tata Motors has launched the seven-seater - Tata Winger
Platinum, which is expected to take care of competition in the
utility vehicle segment provided by M&M Xylo and Toyota Innova.
The model would come with a price tag of | 7.5 lakh. The
company expects volumes to touch 15,000 units within a year
• Maruti Suzuki is likely to launch Kizashi in December-January. The
launch of the premium sedan would bring Maruti into a highly
profitable but unchartered territory. The car could be priced
between | 18 and | 22 lakh. Maruti is working on a new marketing
and communication drive to target the new set of high-end
customers, who would be a target audience for the new offering
• Skoda has launched its much awaited SUV the Yeti with a price
tags of | 15.4 lakh (Ambiente) and | 16.6 lakh (Elegance), which is
going to compete with the existing high end SUVs from the stable
of Ford and Honda. It would also bring tough competition for the
newly launched crossover vehicle Tata Aria
• Maruti Suzuki plans to hire 3,000 employees directly in the next
four months to support its massive service network expansion. It
will set up 200 company-owned service centres by the end of the
financial year. After this it will have over 3,040 such centres, which
is more than the competing carmakers put together at 2,227
service centres as of November 2010. With this expansion, Maruti
plans to have a service centre within 25 km of every Maruti car
owner
The two-wheeler industry has seen a relatively sedate month with a dip on
a sequential basis at 29.2% YTD with market leader Hero Honda
continuing to post strong double digit growth in the domestic market.
Bajaj Auto had seen a higher-than-expected slowdown mainly due to
logistical issues impacting exports. TVS Motors performed well on a YoY
basis. However, it was again impacted sequentially by a decline of ~20%
on the back of a high base in the festive season. Robust growth across the
segment continued and is expected to grow with the onset of the
marriage season across India for a couple of months, going forward.
Market share movement
According to the data released by Society of Indian Automobile
Manufacturers (SIAM), the market share of two and three-wheeler players
is as below for November 2010
Commercial vehicles have seen strong growth in this whole fiscal with
YTD growth of 38.6%. They are expected to gain traction in the remaining
months of the fiscal, which is traditionally stronger. The strong GDP
growth and increase in freight activity is expected to continue for the year
and would help maintain momentum in CV sales. The passenger car
market has again seen newer product launches in a host of categories
from the A2 segment to the premium segment. Raw material prices
remain an overhang with rising prices across all major commodities.
However, OEMs have some degree of leverage on pricing as demand
continues to grow since margins could see a subdued decline if raw
materials continue to remain firm.
Market share movement
According to SIAM, the market share for passenger vehicles (PV) and
CVs in November 2010 has been as follows.
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