Sales volume growth projections for FY16 have been revised upwards to 4%-7% for passenger vehicle sales and revised downwards for light commercial vehicles (LCVs) to negative 5%-negative 8%, motorcycles to flat growth and scooters to 7%-10%. Sales volume growth estimates for MHCVs have been maintained at 13%-17%.
Ind-Ra believes that while demand for certain segments such as passenger vehicles and MHCVs has exhibited better-than-expected trends in the last six months, sustainability is yet to be established. Furthermore, signals emanating from the two-wheeler segment continue to reflect slowing demand from rural markets.
Demand for passenger vehicles is aided by high discretionary expenditure by urban consumers, given the drop in inflation and low cost of ownership. Typically, growth in salaries and wages lag corporate profitability's and given that FY15 profitability for the corporate sector as a whole was lower than FY14's, a meaningful revival in salaries and wages is unlikely during FY16. Consequently, growth in passenger vehicle s could exhibit hiccups during the next few months before a sustainable trend can be established. Ind-Ra has revised upwards its sales growth numbers for passenger vehicle s to 4%-7% for FY16 from the earlier estimate of 2%-5% (published in January 2015). However, within passenger vehicles, utility vehicle sales growth expectations have been reduced to 0%-2% for FY16 from 4%-7% earlier.
The MHCV segment has continued to exhibit strong volume growth from 2HFY15. While some of it could be attributed to pent-up demand and increased rail haulage charges, the recent volume increases could be on account of the new safety regulations introduced in FY16. These pertain to the mandatory inclusion of anti-lock braking systems on all new MHCV models from 1 April 2015 and on existing models from 1 October 2015. These are likely to increase the cost of vehicles substantially. The LCV segment on the other hand continues to show sluggish growth, despite being more aligned to end-consumer demand and last mile connectivity. Volume drop in the LCV segment was also lower during FY13 and FY14. Ind-Ra has maintained its expectation of 13%-17% volume growth for MHCVs during FY16 but has scaled down its expectation on volume growth for LCVs growth to negative 5%-negative 8% in comparison to the 0%-3% estimated earlier.
On the other hand, volume growth in scooters and motorcycles has been coming down from the highs seen in FY12 and FY13. Rural markets have become more relevant with urban demand for motorcycles saturating. However, motorcycle sales growth has moved into the negative territory as rural markets are showing signs of slowing. Scooter sales growth tapered down to 9.5% during April-July 2015 from over 20% in past five financial years, largely due to the base effect. Ind-Ra expects this trend to continue in FY16. The agency has therefore scaled down its sales growth numbers for motorcycles and scooters with growth expectation now being flat (earlier 2%-4%) and 7%-10% (earlier 20%-24%), respectively, for FY16.
Ind-Ra continues to maintain a stable outlook on the auto sector.
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