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Bank of America Merrill Lynch expects an early recovery in petrol cars.
“Narrowing of fuel price differential has increased attractiveness of owning a petrol car, said S Arun of Bank of America Merrill Lynch in a research report on Wednesday.
“In our view, this could lead to faster than expected recovery, driven by shift from diesel cars, and pent up demand. While this will dilute earnings for the sector (mainly M&M), we expect Maruti Suzuki to benefit with a lag,” said Arun.
According to the analysis, based on current fuel prices it implies that cost of ownership is lower for petrol cars compared to diesel, despite the latter’s superior operating cost economics.
“If fuel prices sustain, we expect demand for petrol cars to recover in quarter two of FY 2013-14, earlier than our assumption of FY 2014-15,” said Arun.
The report also said that while Utility vehicles (UVs) should sustain 15-16% Compounded Annual Growth Rate (CAGR) due to customer preference, the expectations is that diesel cars will slip to single digits due to higher running costs, and fulfillment of pent up demand on models with extended wait lists.
According to the report, the impact of slower demand will likely depend on individual diesel exposure and relative franchise. Also, recent/upcoming diesel launches from Honda (Amaze) and Hyundai (i-10) may be ill timed in the current environment.
