INDIAN AUTOMOBILE INDUSTRY

Automobile demand remains weak across the board

ICRA Research Services | Monthly Update

ICRA RESEARCH SERVICES

Passenger vehicle volumes decline 4.8% YoY; Utility vehicles growth slows down to 7.7% YoY Commercial vehicles sales drop 13.4% in June 2013; SCVs join the slowdown bandwagon Two-wheeler volumes decline 4.6% YoY; Scooters maintain healthy growth of 15.2% YoY Domestic Three-wheeler volumes decline by 8.7% YoY; exports jump by 175% YoY

July 17, 2013 ICRA Research Services

Summary
Passenger Vehicles: Negative growth run continues
The domestic passenger vehicle (PV) industry volumes at 196,732 units in June 2013 declined by 4.8% YoY, making it the seventh consecutive month of YoY volume decline. The MidSize Car segment and the Micro Car segment were the biggest contributors to the above volume decline. The Utility Vehicles (UV) segment, which had grown by 52% in 2012-13 over the previous year, also experienced tempered growth momentum reflected in 7.7% YoY growth in June 2013 (4% YoY volume growth each in April and May 2013). While the primary reason for the apparent sharp moderation in UV segments growth in Q1 2013-14 is the high base of Q1 2012-13 (when volume run-rate of few new models was on the ascendency), other factors like excise duty hike on SUVs and rising diesel prices have also played spoil sport. Continued sluggishness in overall demand conditions has prompted even select popular models to initiate consumer offers in recent periods. Amongst top five OEMs in India, by sales volumes, only Hyundai recorded positive volume growth (0.5% YoY) in June 2013; while Maruti Suzuki, Tata Motors and M&M saw their volumes shrink (-7.8% YoY, -19.8% YoY and -11.2%, respectively) during the month. Honda, however, maintained its healthy growth in June 2013 on the back of strong response to the newly launched Amaze model.

Two Wheelers: Domestic volumes shrink in June 2013

The domestic two-wheeler (2W) industry recorded sales volumes of 1.1 million units in June 2013, lower by 4.6% YoY. The decline was attributable to the motorcycles segment that shrunk by 10.2% YoY, even as the scooters segment maintained a positive growth momentum expanding by 15.2% YoY in June 2013. The weakness in motorcycle volumes was evident across key engine sub-segments in June 2013, including the 125cc segment of motorcycles which had remained one of the lone growth segments in recent periods. Hero MotoCorp, the market leader, who commanded a share of 45.1% in the domestic 2W market in 2011-12, had seen its share drop down to 42.9% in 2012-13. However, in Q1 2013-14, Hero MotoCorps market share improved to 43.8% in the backdrop of impact on Hondas volumes due to transitioning of production of Dream Yuga model to its new facility in Bangalore and impact on Bajaj Autos production due to the still ongoing labour woes. On the exports front, 2W industry volumes continued to shrink in June 2013 (3.2% YoY decline) in the wake of hike in interest rates in several countries, tariff increases and trade restrictions imposed by select countries and increase in product prices (to offset reduction in export incentives) by Indian OEMs.

Commercial Vehicles: Q1 2013-14 ends with 8.1% YoY drop in domestic CV volumes; Small Commercial Vehicles (SCVs) join the slowdown bandwagon
The domestic commercial vehicles (CV) sales continued to witness slowdown across the board in June 2013, as reflected in a decline of 13.4% YoY. The quarter-ended June 2013 witnessed an overall decline of 8.1% in sales with both the M&HCV and LCV segment witnessing a contraction in demand. During the quarter, the M&HCV sales declined by 15.5% on a YoY basis, while LCVs volumes shrunk by 3.9%, first time after recovering from the global financial crisis. With weak macro-economic environment, subdued industrial activity (i.e. IIP grew by only 0.1% in YTD 2013-14); the demand for new CVs continues to remain low with weakness now creeping into the SCV segment as well. In terms of market share, Tata Motors gained some of its lost market share in the M&HCV (Goods) segment in Q1 2013-14, while its market position has weakened in the LCVs (Goods) segment as slowdown has caught up with the sub 2t category where it commands a strong market share. In contrast, the 2-3.5t segment has witnessed strong growth where M&M has relatively strong market position with its wide portfolio of pick-up trucks. Within the bus segment, VECV continues to grow well, benefitting from new model launches and expanding reach, notwithstanding the overall industry weakness.

Three Wheelers: Domestic three-wheeler volumes declined by 8.7% YoY in June 2013; Export volumes jump sharply on the other hand
The domestic three-wheeler industry volumes declined by 8.7% YoY in June 2013 with slowdown visible in both the passenger carrier as well as goods carrier segments. On the exports front, the demand for three-wheelers appears to be stabilizing now (up 56.6% in Q1 FY14) on back of low-base of the prior year which saw sharp contraction owing to sharp rise in import duties in Sri Lanka.

Tractors: Growth momentum continues

Although industry growth figures for June 2013 are unavailable at present, the industry is expected to have clocked a healthy growth rate given that M&Ms and Escorts total tractor volumes expanded by 17% YoY and 10% YoY respectively. Upbeat rural sentiments on back of healthy monsoon rainfall coupled with some traction on account of festive demand led to 31% YoY growth in May 2013 and 22% YoY growth in Jun 2013, as against volume shrinkage of 4.6% YoY in Q4 2012-14. Monsoon rainfall in 2013, which has been 17% higher (till July 15, 2013) than long period average, has also been geographically widespread. This has helped in demand recovery in Southern and Western parts of the country, regions in which dependence on rainfall in relatively higher. ICRA Research Services

This report includes.

I. Trends in respective segments of the Passenger Vehicle Industry a. Industry Trends: Demand recovery remains elusive b. Mini Car Segment: Hyundai Santro & Eon record healthy YoY growth on low base, partly offsetting overall segment volume decline c. Compact Car Segment: Volumes grow 2.6% YoY in June 2013; Excluding Honda Amaze, volumes declined by 5.4% YoY in June 2013 d. Super Compact Car Segment: Volumes decline for two consecutive months; including Honda Amaze, volumes grow by 8% in June 2013 e. Mid-Size Car Segment: Continued negative growth may repulse OEMs from introducing new models in this segment f. Executive Car Segment: Sharp volume decline of 33% YoY in June 2013 Trends in the Domestic Two Wheeler Industry : a. Demand recovery prospects remain weak on both domestic as well as exports front b. Scooter volumes continue to expand; motorcycles volumes post decline across all key engine sub-segments Trends in the Domestic Commercial Vehicle Industry a. Light Commercial Vehicle Segment: Volumes shrink 8.7% in June 2013 and 3.9% in Q1 2013-14 vis--vis 14% growth in 2012-13 b. Medium & Heavy Commercial Vehicle Segment: Volumes drop by 21.5% in June 2013 and 15.5% in Q1 2013-14 Trend in Three Wheeler Industry: a. Domestic three-wheeler volumes declined by 8.7% in June 2013; Export volumes jump sharply on the other hand Trends in the Domestic Tractor Industry: a. Coming out of the woods ICRAs Outlook on the above segments

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IV. V. VI.

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