Fitch keeps stable outlook for auto sector on lower costs

Rating agency Fitch has maintained a stable outlook for the auto sector on the back of falling ownership cost due to lower fuel prices and new launches.

"With a consensus expectation of better monsoons this year and new model launches intensifying competition in the passenger car and two-wheeler segments, the agency believes replacement demand will increase, supporting commercial vehicle demand," the report noted.

"In addition, the 23.5 per cent salary hike for government employees will provide a one-time demand boost to all automobile segments."

Industry lobby SIAM, in April, had revised downwards its growth forecast for passenger vehicle sales to 6-8 per cent for the current fiscal, citing high taxation and unfavourable environment around diesel vehicles.

In March too, the Society of Indian Automobile Manufacturers (SIAM) had lowered its growth forecast for 2016-17 to 11 per cent, from the earlier 12 per cent, after the imposition of infra cess ranging between 1-4 per cent in the Budget.

Car sales logged the highest sales growth in five years at 7.8 per cent in 2015-16, driven largely by new model launches and heavy discounts.

Motorcycle sales for the fiscal were down 0.24 per cent to 1,07,00,466 units while sales of commercial vehicles rose 11.5 per cent to 6,85,704 units as against 6,14,948 in 2014-15.

The Fitch report said that between 2010-11 and 2015-16, total auto sales have grown 35 per cent to 24.1 million units.

Of this, domestic sales accounted for 85 per cent and exports accounting for the rest. Rural and middle-income customers drove two-wheeler demand, constituting 80 per cent of domestic sales in the past fiscal.

Out of the total sales, passenger vehicles made up only 13 per cent and commercial and three-wheelers brought up the rest.

Robust macroeconomic expansion last year supported the 7.2 per cent growth in domestic passenger vehicle sales to 2.8 million units, up from 3.9 per cent in 2014-15. 

Commercial vehicle sales, which rose 11.5 per cent, were boosted by revival in the mining sector. The agency expects strong growth to continue in this segment.

While three-wheeler sales grew 1 per cent in 2015-16, two-wheeler volumes rose 3 per cent, lower than 7.9 per cent in 2014-15, as rural demand took a hit from two consecutive monsoon failures.

The overall growth came despite the industry missing the output target for the decade ending 2015-16.

The turnover in 2015-16, as per the SIAM estimate, stood at Rs 6.01 lakh crore, which is well within the target range of the Automotive Mission Plan 2006-16.