IL&FS Investsmart - Automobile Roadmap

Another year of growth……

Financial year 2006-07 has ended on a reasonably good note for the automobile industry. Though, the last quarter was a tad sluggish due to rise in interest rates, which in turn made product offerings across the board a little costlier. Conditions worsened further during the last two months with softening of sales, especially in two wheelers, triggered by a slowdown in demand.

In FY07, the industry grew at a healthy pace; passenger car sales was up 20.6% YoY, M&HCV was up 32%, LCV 31.2%, while three-wheeler sales soared 25.4%. However,pressure was visible on two-wheeler sales, which grew at 12.04% YoY.

During the first half of 2007, all demand drivers including low interest rates were at play; as it reduced the overall cost of owning a vehicle. In contrast, the second half reflected easing out of demand on the back of firming of interest rates.

Passenger Cars

The passenger car industry recorded growth of 20.6% in FY07. Maruti grew at about 20% in line with the industry and upheld its leadership position with 47% market share. Major contributor to Maruti’s growth was A2 (compact car segment), which grew 27% YoY. The company accounts for 52% market share in this segment. Meanwhile, A4 (executive segment) registered strong growth of 48% YoY, albeit on a small base. This can be attributed to rising disposable income, coupled with improved lifestyle of the urban population in India. A shift in demand pattern from the A1 to A2 segment is evident from the fact that sales in A1 (mini car segment) declined this year and the decline has been sharper in the last few months of the financial year.

In the month of March 2007, a clear slowdown in the growth of passenger cars was visible due to rising interest rates. This can also be attributed to a higher base in the previous year due to an excise cut. Passenger cars grew only 6% in March 2007 in comparison to the same period last year. A1 segment sales declined by 29% YoY. Despite the overall slowdown, A2 and A4 segments continued their strong growth at 19.5% and 71% respectively over the corresponding month last year.