Kotak Sec, AUTOMOBILES : Budget Expectations

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AUTOMOBILES
Current view
q After a difficult FY09, volumes for the auto industry in FY10 saw a sharp spike
helped by the stimulus package announced by the government and the overall
robust demand scenario. Auto industry grew in excess of 25% during FY10 and
is expected to repeat the feat in FY11. Given the high base, volume growth for
the auto industry is expected to moderate to a 12-15% range in FY12.
q Tight liquidity and increase in interest rate pose a threat to our volume growth
expectations. Currently, the general view is of further tightening of interest
rates in the short to medium term. Such an outlook is negative for the auto
sector in terms of volume growth. Furthermore, firm commodity prices have
started impacting the margins. In such a scenario, any negative in the budget
will be the last thing in the minds of the OEM's.
q We do not expect increase in excise duty on back of concerns related to
inflation. Any move towards restoration of excise duty rates to the original levels
would work out as a negative for the auto sector. In the past 12 months, we
have witnessed that any increase in vehicle prices failed to dampen the demand
for vehicles. However the same may not hold true in FY12 because of
moderating volume growth.