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• Rising operating costs: Over the past year, monthly running expenses for
automobiles have risen by c.15% given rising interest rates, higher fuel cost
as well as increasing product prices.
• EMI (equated monthly installments) costs have risen: Over the past year,
both product prices and interest rates have risen, which has resulted in a
sharp increase in EMIs. While product prices have been raised to offset
higher input costs, interest rates on auto loans have risen by c. 250-300bp
given the impact of a tightening monetary policy stance by the Central
Bank. We believe that interest rates are likely to remain at elevated levels
over the near term. Given that c.70% of passenger cars and over 85% of
commercial vehicles are bought on finance, the increased payouts could
impact consumer sentiment.
• Fuel price hikes: More to come? We believe that the recent spurt in crude
prices over the past few months has increased the losses for the SOE
companies. Thus, while fuel prices have risen by 30% over the past year,
Our India Oil and Gas team expects a window for further price hikes post
the state elections in mid-May. Fuel expenses typically account for c.25-
30% of the monthly running costs for passenger cars / two wheelers and
c.50-55% for commercial vehicles.
• Sector View: We believe that after robust growth over FY09-11E (wherein
sales have grown at a CAGR of c.25%); growth rates will likely moderate
(off a high base) to trend levels in FY12E. While we expect growth for
passenger cars and two wheelers to come in at c.15% over the year, M/HCV
commercial vehicles growth is likely to moderate to c.12-14%. We believe
that while growth rates will ease, competitive intensity is rising –
particularly in the passenger car and two wheeler segments. Our India
strategy team has an UW stance on the automobile sector.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
• Rising operating costs: Over the past year, monthly running expenses for
automobiles have risen by c.15% given rising interest rates, higher fuel cost
as well as increasing product prices.
• EMI (equated monthly installments) costs have risen: Over the past year,
both product prices and interest rates have risen, which has resulted in a
sharp increase in EMIs. While product prices have been raised to offset
higher input costs, interest rates on auto loans have risen by c. 250-300bp
given the impact of a tightening monetary policy stance by the Central
Bank. We believe that interest rates are likely to remain at elevated levels
over the near term. Given that c.70% of passenger cars and over 85% of
commercial vehicles are bought on finance, the increased payouts could
impact consumer sentiment.
• Fuel price hikes: More to come? We believe that the recent spurt in crude
prices over the past few months has increased the losses for the SOE
companies. Thus, while fuel prices have risen by 30% over the past year,
Our India Oil and Gas team expects a window for further price hikes post
the state elections in mid-May. Fuel expenses typically account for c.25-
30% of the monthly running costs for passenger cars / two wheelers and
c.50-55% for commercial vehicles.
• Sector View: We believe that after robust growth over FY09-11E (wherein
sales have grown at a CAGR of c.25%); growth rates will likely moderate
(off a high base) to trend levels in FY12E. While we expect growth for
passenger cars and two wheelers to come in at c.15% over the year, M/HCV
commercial vehicles growth is likely to moderate to c.12-14%. We believe
that while growth rates will ease, competitive intensity is rising –
particularly in the passenger car and two wheeler segments. Our India
strategy team has an UW stance on the automobile sector.
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