The Indian Automotive Sector
A look into the Indian Automotive Sector by Krish Khetwani
Before going ahead with a commentary on the Indian Automotive Sector, it is necessary to be aware of certain facts about the same. The Indian auto industry became the 4th largest in the world with sales increasing 9.5 per cent year-on-year to 4.02 million units (excluding two wheelers) in 2017. It was the 7th largest manufacturer of commercial vehicles in 2017.The Two Wheelers segment dominates the market in terms of volume owing to a growing middle class and a young population. Moreover, the growing interest of the companies in exploring the rural markets further aided the growth of the sector.
India is also a prominent auto exporter and has strong export growth expectations for the near future. Automobile exports grew 15.54 per cent during April 2018-February 2019. It is expected to grow at a CAGR of 3.05 per cent during 2016-2026. (Ibef.org, 2019)
Another fact that you should be aware of is Automobile Sales in India are counted as factory dispatches, not retail sales. The graph below shows the composition of the Industry-
BHARAT STAGE STANDARDS AND ITS IMPACT
Another major factor that has affected the market currently is the upcoming compulsory implementation of BS-VI norms (Bharat Stage VI) to all vehicles with effect from 1st April, 2020. The Bharat Stage are standards instituted by the government to regulate the emission of air pollutants from motor vehicles. The norms were introduced in 2000. With appropriate fuel and technology, they limit the release of air pollutants from vehicles using internal combustion engines. As the stage goes up, the control on emissions become stricter. Thus Bharat Stage VI norms are two stages ahead of the present stage IV norms in regulation. Compliance with BS-VI
norms will require higher investment in technology to upgrade vehicles in stock and making new vehicles. Those who buy Bharat Stage VI-compliant vehicles will have to pay more since such Vehicles will cost automakers more and they will pass on the additional cost to the buyers. The Bharat Stage VI-compliant fuel will be of a higher grade and thus more expensive too. (The Economic Times, 2019)
Segment wise over view
Passenger Vehicles
Passenger vehicle (PV) sales in India continued their downward spiral in June as automakers curbed factory dispatches to control inventory at dealerships. Initial reports from the top companies suggest a year-on-year (y-o-y) decline of more than 16% for the PV segment. (Panday, 2019)
Sales of market leaders like Maruti Suzuki and Hyundai have both fallen as much 17% year-on-year during Q1FY20 with no visible signs of recovery. In light of this situation a number of leaders of the auto industry including SIAM President Rajan Wadhera have united to seek a reduction in the GST rate from 28% to 18%.
Another major factor affecting sale of PV is the implementation of the BS-VI norms spoken about above. Many manufacturers have reduced production due to a stock pile up of BS-IV vehicles in their inventory which they need to sell before 1st April, 2020.
Key players– Maruti Suzuki
Commercial Vehicles
Commercial Vehicle sector, mostly a cyclical industry, for the first time crossed one million domestic sales mark in FY18-19. The segment was mainly driven by demand due to new infrastructure projects and fleet replacement.
With a growth of 17.6 per cent, the commercial vehicle manufacturers dispatched 1,007,319 units from their factories across India in the FY’19 to 856,916 units in FY’18, says the latest data released by SIAM. The top three players – Tata Motors, Mahindra & Mahindra and Ashok Leyland, which commanded more than 86 per cent of the market, grew at almost similar pace of 19 per cent, 15 per cent and 17 per cent respectively.
The Federation of Automobile Dealers Associations (FADA) noted in its Monthly Vehicle Registration Data for the Month of June 2019 that Q1FY20 ended on a negative note as Total Vehicle Registrations for the quarter decreased by -6% YoY with commercial vehicles leading the de-growth by -14%. (Business-standard.com, 2019)
Key players– Tata Motors, Ashok Leyland,Mahindra & Mahindra, Force Motors.
Two Wheelers
India is the one of the largest If not the largest manufacturer of two wheelers in the world. The trend of owning two-wheelers is due to a variety of facts peculiar to India. One of the chief factors is poor public transport in many parts of India. Additionally, two-wheelers offer a great deal of convenience and mobility for the Indian family.
Two Wheelers sales registered a growth at 4.86 percent in April-March 2019 over April-March 2018. Within the Two Wheelers segment, Scooters declined by (-) 0.27 percent, whereas Motorcycles and Mopeds grew by 7.76 percent and 2.41 percent respectively in April-March 2019 over April-March 2018. Exports recorded a growth of 3.17%. (Siamindia.com, 2019)
Key players– Hero Motocorp, TVS Motors,Eicher Motors
Three Wheelers
The sale of Three Wheelers showed tremendous year-on-year growth in FY 18-19 over FY 17-18 with domestic sales growing by 10% and exports showing an outstanding growth of 49%. The possible reason for this great increase in exports can be primarily due to the enormous demand for Indian Three Wheelers in Asian and African markets. (Ravichandran, 2019)
Three Wheelers sales increased by 10.27 percent in April-March 2019 over the same period last year. Within the Three Wheelers, Passenger Carrier sales registered a growth of 10.62 percent and Goods Carrier grew by 8.75 percent in April-March 2019 over April-March 2018. (Siamindia.com, 2019)
Key players– Bajaj Auto ,TVS Motors,Mahindra & Mahindra
Conclusion
Based on the above information it can be said that segmentally, the three wheelers have performed and are performing the best followed by Two wheelers , Commercial Vehicles and Passenger vehicles respectively. Currently, the market is experiencing a short lived slack period but the future is still bright for the industry with many factors like rapid urbanization and the government’s Automotive Mission set in motion to promote the industry. The industry is set to contribute as much as 12% to the GDP of the country by 2026 up from its present contribution of 7%.
References
Ibef.org. (2019). Automobile Industry in India, Indian Automobile Industry, Sector, Trends, Statistics. [online] Available at: https://www.ibef.org/industry/india-automobiles.aspx [Accessed 23 Jul. 2019].
The Economic Times. (2019). Bharat Stage VI norms: Know how they will impact you. [online] Available at: https://economictimes.indiatimes.com/industry/auto/cars-uvs/bharat-stage-vi-norms-know-how-they-will-impact-you/articleshow/66362907.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst [Accessed 23 Jul. 2019].
Panday, A. (2019). Sales of passenger vehicles continue to decline in June. [online] https://www.livemint.com. Available at: https://www.livemint.com/auto-news/passenger-vehicle-sales-continue-to-drop-for-eighth-straight-month-in-june-1561995683818.html [Accessed 23 Jul. 2019].
Mishra, S. (2019). CV industry sales analysis FY19: A turbulent journey of a milestone year – ET Auto. [online] ETAuto.com. Available at: https://auto.economictimes.indiatimes.com/news/commercial-vehicle/mhcv/cv-industry-sales-analysis-fy19-a-turbulent-journey-of-a-milestone-year/68830305 [Accessed 23 Jul. 2019].
Business-standard.com. (2019). Total Vehicle Registrations For Q1FY20 Fall 6% YoY. [online] Available at: https://www.business-standard.com/article/news-cm/total-vehicle-registrations-for-q1fy20-fall-6-yoy-119071600471_1.html [Accessed 23 Jul. 2019].
Siamindia.com. (2019). Society of Indian Automobile Manufactures. [online] Available at: http://www.siamindia.com/statistics.aspx?mpgid=8&pgidtrail=9 [Accessed 23 Jul. 2019].
Ravichandran, R. (2019). Auto sales on track: 3-wheelers buck the trend with 24% growth in FY 19. [online] The Financial Express. Available at: https://www.financialexpress.com/industry/auto-sales-on-track-3-wheelers-buck-the-trend-with-24-growth-in-fy-19/1546806/ [Accessed 23 Jul. 2019].
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A look into the Indian Automotive Sector by Krish Khetwani 