All is not well with the interest-sensitive sector, but select segments will outperform.
There’s life beyond passenger cars, for investors seeking to ride the consumption wave. While rising interest rates and high cost of ownership will result in demand deceleration, there are segments within the sector that will continue to do well in FY12. Given that both the heavy commercial vehicles and passenger cars are sensitive to interest rates, volumes will be hit in these two segments first.
However, since the rural economy is in fine fettle, the demand for tractors and two-wheelers would remain strong. For instance, Hero Honda sells 75 per cent of its total volumes in cash, while 60 per cent of Bajaj Auto’s sales are financed. According to Sharekhan’s auto analyst, Deepak Jain, the rural consumption will drive auto sales this year, as will demand for last-mile logistics solutions.
| Year | MHCV | LCV | Car | 2-wheeler | Tractor |
| 2006 | 221550 | 170091 | 1119657 | 7565560 | 292880 |
| % growth | 4.5 | 24.7 | 6.9 | 15 | 18.3 |
| 2007 | 294166 | 223136 | 1353726 | 8491978 | 352781 |
| % growth | 32.0 | 31.2 | 20.9 | 12.2 | 20.5 |
| 2008 | 296675 | 252813 | 1516716 | 8068991 | 346501 |
| % growth | 0.9 | 13.3 | 12 | -5 | -1.80% |
| 2009 | 200314 | 226505 | 1659777 | 8441793 | 347010 |
| % growth | -32.0 | -10.4 | 9.4 | 4.6 | 0.1 |
| 2010 | 265369 | 312361 | 2121915 | 10511009 | 440331 |
| % growth | 32.5 | 37.9 | 27.8 | 24.5 | 26.9 |
| 2011 | 352060 | 400645 | 2645899 | 13329895 | 545109 |
| % growth | 32.7 | 28.3 | 24.7 | 26.8 | 23.8 |
| Growth estimates for FY12 | 10-Aug | 20 | 10 | 15-Dec | 15 |
| MHCV: Medium & Heavy Commercial Vehicle | |||||
Thanks to the Mahatma Gandhi National Rural Employment Guarantee Act, rural India is flush with cash. Under this scheme, an individual is entitled to Rs 175 a day for 100 days in a year, around Rs 17,500 per annum. If a family has three members entitled to this scheme, its income goes up substantially. Analysts believe consumers in rural India are buying mopeds (TVS controls majority of this market) and other two-wheelers for trading purposes. The new ‘rich’ urbanised farmer is driving consumption and farm labourers have turned into traders. So, small trucks such as Tata Magic and M&M’s utility vehicles are used for ferrying goods. Also, shortage in farm labour has fuelled farm mechanisation. Analysts expect tractors to clock 15 per cent growth in FY12. Another shift that has been happening is in commercial vehicles (CVs) space. In 2000, 50 per cent of the CVs market comprised of 12-16 tonnes trucks. In 2010, the segment reduced to less than 25 per cent. Now 16-25 tonnes accounts for 30 per cent of the market, from 11 per cent in 2002. Higher and low tonnage vehicles are growing rapidly. Reason for this is the hub and spoke model that has evolved as part of the supply chain dynamics. Consumer goods companies now have large warehouses outside cities and small towns and smaller CVs are used to ferry goods within cities and towns. This has fuelled demand for Tata Ace, M&M’s Maxximo, Gio and Genio (new category).