CRA has come out with its report on monthly automobile sector update. According to the research firm, in view of current economic slowdown, high financing costs, significant competition from LCV segment and limited visibility for further fresh permit issuances, the outlook for the three wheeler segment is expected to remain muted in the near-term.
Passenger Vehicles: Demand shrinks post festive season; recently introduced models remain in favour
Post the festive season ebullience, the demand for passenger vehicles declined by 1.1% YoY in December 2012 despite steep discounts being offered across the board to push year-end sales. Market leader - Maruti Suzuki however managed to post a YoY growth of 5.9% in volumes supported by rise in volumes of Swift, DZire and Ertiga models. Our channel check suggest that its key models - Swift, Swift Dzire, and Ertiga continue to have waiting periods although much smaller than earlier. Most of the other OEMs reported a YoY decline in volumes with decline being the sharpest for Skoda (-61.8%), Fiat (-26.3%), Toyota (-24.3%), Tata Motors (-22.8%) and Volkswagen (-20.3%). While growth momentum slowed down in the passenger cars segment, the Utility Vehicle (UV) segment continued to witness strong volume growth aided by increasing demand for recently introduced models. M&M registered a YoY growth of 16.1% in volumes in December 2012, while Renault also continued to scale-up volumes on the back of the successful launch of Duster.
Two Wheelers: Testing Times to continue
After posting sharp decline in volumes in August and September 2012, the domestic 2W industry growth showed festive season cheers in October 2012, only to slowdown once again over the last two months with volume growth being a moderate 4.4% YoY in December 2012. The industry had maintained strong pricing discipline during the last 3-4 years when demand had generally remained strong. During recent months, however, select OEMs have had to resort to offering sweeteners in the form of attractive financing schemes and discounts on insurance to draw customers to showrooms. This may well be the prelude for further sops as demand environment is likely to remain soft in the near term. Hero MotoCorp , the market leader, who commanded a share of 45.2% in the domestic 2W market in 2011-12, saw its share tumble to 36.9% in September 2012 after it undertook a sharp production cut to remain in sync with demand. In December 2012 though, Hero MotoCorp recovered lost ground recording a market share of 46.4%. M&M has recently launched two new bikes in the 110cc commuter segment and Bajaj Auto has also launched a new bike which is likely to intensify competition in the entry segment.
Commercial Vehicles: M&HCV sales declining at a steeper pace now; Near term outlook remains subdued
With weakening economic indicators and low freight availability, the demand for commercial vehicles continues to weaken. M&HCVs volumes are now declining at steeper pace with Tata Motors, Ashok Leyland and Volvo Eicher registering a drop of 46%, 33% and 21% respectively in Dec-12. Our interaction with a host of dealers, transporters and financing institutions doesn’t suggest signs of recovery in the near-term. The strong growth momentum in the LCV (Cargo) segment however continues but some moderation in growth has started appearing on back of high-base effect. Along expected lines, While Volvo Eicher continues to gain market share in the M&HCV segment aided by new model introductions and increasing sales network, Ashok Leyland made a good head start in the LCV segment with its first product offering ’Dost’. With more model introductions over the medium term, we expect it to build upon its market share of 7-8% in the LCV segment.
Three Wheelers: Domestic pax carriers grow on fresh permits; headwinds persist for goods carrier and export segments
The 3W industry reported a volume growth of 5% in Dec-12 (Bajaj Auto: +9%, Piaggio: -8%, M&M: -11%, Atul Auto: +20%, TVS Motors : +78%), mainly led by healthy 10% growth in domestic passenger carriers on account of fresh auto-rickshaw permits issued in some cities like Delhi and Jaipur. However, 3W sales declined 7% on QoQ basis in Dec-12 due to lower fresh permit issuances than in Nov-12, which also coincided with the festive season. Domestic 3W-goods carriers (-10% in Dec-12) continues to be impacted by economic slowdown, high financing costs and weak consumer durable sales. On Exports front, 3W sales again declined 10% in Dec-12 after witnessing some recovering the lows of Jun-12. For Apr-Dec 12, overall 3W sales have declined 6% (domestic: +5%; exports: -21%). In view of current economic slowdown, high financing costs, significant competition from LCV segment and limited visibility for further fresh permit issuances, ICRA expects the outlook for the three wheeler segment to remain muted in the near-term.
Tractors: Festive season brings some recovery to otherwise subdued demand
Signs of weakness started emerging in the tractor market post Oct-11, although full year growth (11.5% in FY12) continued to be respectable. Growth during H1 FY13, however, slipped in the negative territory (-3.7%) with much of the decline being felt in Q2 FY13. Tractor volumes continue to be suppressed reeling under cyclical headwinds and weak consumer sentiments in lieu of deficient monsoon rainfall and non-conducive macro-economic factors. While Aug-12 and Sep-12 saw sharp demand contraction, volumes recovered in Oct-12 and Nov-12 supported by buying in the festive season.
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