SIAM Revises Passenger Car Growth To 0%-2%

The fourth downward revision of growth forecast for the auto sector for FY13 came in from SIAM (Society of Indian Automobile Manufacturers) in January 2013. A weak macroeconomic outlook, high interest rates and rising fuel prices are expected to keep the demand subdued over the near-term.

The latest alteration to the estimates reveals the levels of pessimism surrounding the industry and the realism around the current scenario. In April 2012, SIAM had forecasted Passenger Vehicles growing at 10%-12%, which has now been brought down to 7%-10%. The commercial vehicle sales growth estimates saw a more drastic revision, coming down from 9%-11% in April 2012 to 0%-2% in January 2013.

The trends in the Passenger Vehicles and Commercial Vehicles segments have been rather polarised.

The overall Passenger Car sales have been amazingly subdued in this financial year. The segment started off with a forecast of 10%-12% in April 2012 and has come down to an almost flat 0%-2% in the latest estimates. In the April-December 2012 period, the sales of passenger cars have declined by 0.33% compared to the corresponding period in the previous year, which provides a justification for the huge tumble in expectations.

Contrary to this, Utility Vehicle (UV) sales have been robust enough to have provided support to Passenger Vehicle sales. In April to December 2012, the segment has grown by 59.10% on a yearly basis. In view of this, SIAM has revised the estimated growth for FY13 upward to 56%-64% from the earlier 29%-31%.

A similar trend has been observed in Commercial Vehicles, where Light Commercial Vehicles (LCV) have grown by 15.61% and Medium and Heavy Commercial Vehicles (M&HCV) have declined by 19.13% in April to December 2012 when compared to the similar period in the previous year. This has resulted in flat growth for overall Commercial Vehicle sales. SIAM has thus revised the forecast from the earlier 9%-11% to 0%-2%. Sales growth for the period stands at 0.74% so far.

The slowdown also gripped on two-wheelers which have seen a gradual decline from 10.94% growth in April 2012 to 4.09% in April-December 2012. With this, the growth estimate was cut from 11%-13% in April 2012 to 3%-5% in January 2013. SIAM has attributed this decline to the softening of rural demand and a sustained cautious urban sentiment.

These actions and actual sales figures highlight how bleak the situation in the Indian automobile industry is. This trend is likely to stick around till there is a reversal in the interest rate movement and in the direction of fuel prices. Considering the macroeconomic trends, monetary policy expectations and current volumes, we can expect the pressure to remain in the near-term.

However, companies that are comfortably positioned are expected to do well. Mahindra & Mahindra, which has shown a good performance financially and volumes-wise, is managing to successfully offset the weakness in farm equipment sales and M&HCV sales with the outperformance of UVs and LCVs. Similarly, Tata Motors has been financially offsetting the negative effect of domestic sales with strength in the performance of Jaguar and Land Rover. Bajaj Auto too has been managing this situation by relatively better product positioning and exports. Having said this, we are bullish on the stocks of the aforementioned companies.