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2010 was another strong year for the Indian Auto Sector. Volume growth
across segments was healthy at 22-47%, with commercial vehicles
clocking the highest growth of 47%. Demand outstripped supply as
manufacturers struggled with capacity constraints and waiting periods
extended across models. Manufacturers are now ramping up capacity and
setting up new plants as they expand for the next phase of growth. For
2011, we expect headline growth rates to moderate as base effect sets in.
Competitive pressures are high and we expect margins to remain under
pressure as pricing power remains tight. A diesel price hike and rising
interest rates could pose further risk for sales momentum in 2011.
Sales growth remains robust
While passenger vehicles and two wheelers saw 32% and 30% growth respectively
in the domestic market, commercial vehicles recorded a 47% growth. Going
forward, we expect the growth momentum to remain strong with 18-20% growth
in 2011 for passenger vehicle segment, driven by the overall economic growth,
rising rural incomes and increasing penetration. The passenger vehicle segment is
further forecasted to grow with a CAGR of 15-18% for next 5 years.
Slew of new model launches in 2
nd
fastest growing auto market
Slew of new model launches in 2010 left consumers spoilt for choices while
increasing competition for market leaders. The hatchback segment witnessed
maximum launches with Chevrolet Beat, Volkswagen Polo, Ford Figo, Nissan Micra
& Alto-K10. Currently there are 25 anchor models in the mini & compact
segments. Toyota Etios launched this month and positioned in the C segment,
competing with Dzire & Indigo, garnered over 12,000 bookings within 3 weeks of
launch. The year also marked phase out of the first people`s car – Maruti 800 from
13 major cities, and sales drop to 500 units of the world’s cheapest car – Nano.
Capacity constraints and raw material prices effecting performance
The unexpected growth, just after a slowdown, caught most of the OEMs and
component manufacturers off guard. In spite of measures to increase production,
models, like Dzire & i20, remained in long waiting periods affecting sales. Also,
increasing prices of key raw materials put pressure on the margins leading to
several rounds of price hikes in the year. Oct-Dec saw prices of rubber increasing
by 23%, while steel and aluminum increased 8% & 16% respectively.
Hero Honda split after 26 years of successful partnership
Hero Group’s split with Honda Motors after 26 years of successful partnership as
world’s largest two wheeler manufacturer will remain as the highlight of the year.
Hero Honda signed a MoU with Honda approving the 26% stake sale of the latter
to the Munjal family. We view the terms of the deal positively in HH’s favor
considering – 1) at par or lower royalty payment, 2) access to exports market, and
3) rights to “Honda” brand till 2014. We believe the deal is advantageous for HH in
short term but retaining dealer network advantage, building exports and
developing internal R&D capabilities will be the key to longer term success.
M&M on the way to be a global SUV player
M&M signed a definitive agreement with Ssangyong Motor Co. (a South Korean
automaker) to acquire 70% stake for $463 million paving its way for a global
presence in SUV segment. Ssangyong Motor Co. was majority-owned by SAIC
Motor Corp. until the Chinese company lost management control during the
bankruptcy process early last year. We believe the acquisition will help M&M in its
aspiration of becoming a global player in SUV segment by providing – 1) a global
footprint, 2) broader product portfolio, and 3) technological support.
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