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Indian car market on fast track
By Dr. Uday Lal Pai
Exclusively for InvestorIdeas.com
posted November 27, 2006
The passenger car market continues to grow in top gear in India this financial year as the country has become the world's largest mini carmaker.
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Automakers are attracted to India, thanks to its galloping economy, increasing disposable income, and young population. In addition, the small-vehicle segment is a great avenue into India's sizable rural market.
According to auto industry sources, the India's cumulative domestic sales of small cars during April-November have already hit 0.52 million units, up nearly 23% from 4,23,954 units sold in the same period last year. Include exports, and the figure will be around 0.6 million units.
The festive season in October proved good for car manufacturers as they clocked 16.34 per cent growth in sales to 92,383 units compared with 79,407 units in the same month last year. However, the figure was comparatively lower than the September figure, which stood at 94,734 units.
Exports are also doing fine. Going by the '04-06 growth charts, passenger car exports are back on track in the first quarter this year. Passenger car exports grew by about 28% in the quarter ending April-June '06 and stood at 49,132 units
Small cars already account for 70% of India's total one-million-car yearly market-a figure that is expected to double in the next four years. Around a dozen new small and compact cars, with engine capacities ranging from 1,000 cc to 1,500 cc are expected to hit the market in the next two years in gasoline, diesel, and hybrid-engine models. India's long-range potential could be impressive. A study by consulting firms Booz-Allen Hamilton and McKinsey predicts that India's domestic car market will cross 3.5 million by 2015.
It is true that the Indian auto market was primarily a market where small cars thrived. But this is changing rapidly, with increasing number of big vehicles swarming the roads as part of a new affluence, which is changing the face of a resurgent economy.
Mid-sized cars like the recently launched Ford Fiesta and Honda City ZX are rapidly emerging as the favorite vehicle of a middle class that is no more reluctant to spend. As Indian auto majors shifted gears, retail financiers also stepped in to satiate the growing appetite for four wheelers. Automobile dealers did not fail to take the cue and set up shops in every potential center, even in remote small towns.
India rolled out nearly 8 million vehicles last year, 1.3 million of which were passenger cars. But market penetration is still low at only six to seven cars for every 1,000 people in India. Of India's middle class of more than 250 million; about 100 million have the means to buy a car.
Potential for further expansion underpins ambitious plans to quadruple auto industry sales from about $36 billion last year to $145 billion by 2016, as outlined by industry body SIAM. In the next 10 years the auto industry will require $35 billion to $40 billion of investment, or four times the investment of the last 16 years.
Investment destination
India is positioned as a hot auto-manufacturing destination, and the numbers do the talking- a whopping $ 7 billion is expected to drive into the sector in the next two years. And that's merely to fund the expansion plans of India's car manufacturers.
Market leader Maruti, Hyundai, the second largest manufacturer, Tata Motors, Mahindra & Mahindra will spend millions of dollars.
Foreign manufacturers like General Motors, Toyota, Honda Siel and the Sonalika group are also investing heavily in India. After DaiymlerChysler, two new German entrants BMW and VW are also betting big on India.
Nearly ten years after it established its Indian base in Tamil Nadu, Korean chaebol Hyundai Motor (HMC) is set to give a big boost to its Indian subsidiary, Hyundai Motor India (HMIL).
HMC is set to unveil its additional investment plans in Tamil Nadu. Ford Motor Co also plans to establish a plant in India to make diesel engines as consumers in the fast-growing market shift to the more fuel-efficient option. The plant would have a capacity to make about 100,000 units of the 1.4-litre Duratorq engine each year, say sources.
Growth Drivers
Many experts feel the current high double-digit growth in the domestic market will be difficult to hold on to. "Last year, around this time, the industry was battling new emission norms among several other factors that had led to a sudden slump," says an industry expert. "Even the domestic sales slumped and the high double digit growth one sees this quarter are simply because of a much lower base last year," he added.
Many argue that the best is yet to come. "This is just the beginning. The best of growth is yet to come in the latter half of the financial year, with the festive season and New Year purchases. Investment in automobiles has rapidly increased and besides the bulging base of compact cars, the mid-size sedans will also be a rapidly growing segment in the next 3-4 years," says Arvind Saxena, vice-president, Hyundai Motors Indian Ltd.
But there are definite growth drivers - First of all it is the reduction in excise duty on small-cars, affected in the last Budget, which has clearly given a leg-up to sales in that category. The concession extended to small-cars has been the catalyst for Honda and Toyota to take a serious look at the options available to them in the small-car market. India is now reckoned as a low-cost global manufacturing base for small cars and Hyundai has already taken the lead in this respect.
According to a market study, nearly 150,000 two-wheeler owners, currently not owning a car or multi-utility vehicle plan to do so in the next three months. And, if you take a longer timeframe - one to three years - the number of such households jumps to half-million. It is a booming market for carmakers.
Major Players
Maruti Udyog
Hyundai Motor India
Tata Motors
Kirloskar Motor
Disclaimer
Dr. Uday Lal Pai is an independent columnist for this web site.
Dr. Uday Lal Pai may hold long or short positions in any of the stocks mentioned in this article and those positions can change at any moment. InvestorIdeas.com Disclaimer:
www.InvestorIdeas.com/About/Disclaimer.asp, InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.
Dr. Uday Lal Pai is a freelance writer. Nothing in the articles should be construed as an offer or solicitation or recommendation to buy or sell any specific products or securities. Past performance does not guarantee future results.
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