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Domestice passenger vehicle volume may grow 2-3 pc: Icra

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Press Trust of India Mumbai
The domestic passenger vehicles industry's volumes are likely to clock a muted growth of 2-3 per cent in the next fiscal due to a continued weak demand both in the small car and utility vehicle segments, ratings firm ICRA said today.

The domestic volumes are however expected to decline by 6-7 per cent in FY 14, Icra said.

The small car segment currently contributes as high as 55-60 per cent in the over-all industry volumes.

The domestic PV industry volumes dropped by 6 per cent in the first 11 months of the current fiscal to 2.3 million units, the report said, adding, "This decline in volumes follows a moderate expansion in industry volumes by 5.1 per cent and 2.2 per cent in the previous two fiscals."
 

The reasons for sluggishness in PV demand over the last 3 years are high inflation, elevated interest rates and rising fuel prices that have exerted pressure on disposable income of consumers, Icra report said.

However, as many of the cyclical variables become less spiteful, the PV industry is expected to revert to a volume CAGR of 10-11 per cent including exports over the medium term, it said.

As per the ICRA study, excise duty cut could lead to uptick in demand in the next few months though enquiry levels have not gone up much since the government announced an excise duty cut on both passengers and commercial vehicles in the interim budget for FY2015 last month.

"Still, we expect demand to see an uptick in the next few months considering that the excise duty sop is applicable only till June 30 which could lead to sales advancement to some degree," the report said.

Also, around 40 per cent of the industry's sales are attributable to replacement demand, a segment of buyers that may choose to avoid postponement of their purchase decision further to capitalise on the currently available window of reduced PV prices, Icra report said.

However, the excise duty cut may not give a significant fillip to either first-time buyers or from those looking to purchase an additional vehicle for the household till such time as disposable income growth recovers, the report said.

The prevailing weakness in domestic PV demand has meant a relatively prolonged period of heavy discounts offered by OEMs on PV models across segments, the report said adding, "as PV volumes declined by 9.3 per cent year-on-year in January, the OEMs in response have had to increase the level of discounts in February and March this year".

However, overall the industry trend in favour of 'push-sales' through discounting rather than 'pull-sales' through advertisements and brand building seems to have got further entrenched during the current period of slowdown.

The operating margin is likely to be under pressure with weak volumes and reduced pricing power, leading to an estimated margin compression ranging between 150-400 bps during 2013-14, Icra said.

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First Published: Mar 24 2014 | 7:16 PM IST

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