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| India Infoline Sector Reports | Thu, 11-Dec-2003 11:57:30 IST (GMT+5:30) | |
| Automobile - Cars | ||
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Summary The Indian passenger car industry as we see today is relatively recent in origins. Except the ubiquitous Ambassador and the Premier Padmini's there was not much moving around with an Indian tag. The restrictive policies of the Indian government did not allow foreign players to set shop in India and in the absence of adequate technology and purchasing power it resulted in the slow growth of the industry even after a long time since independence. The demand for cars increased from 15,714 in FY60 to 30,989 in FY80 at a CAGR of only 3.5%. The entry of Maruti Udyog Ltd, a GoI JV with Suzuki of Japan, in 1983 with a so-called "peoples" car and a more favorable policy framework resulted in a CAGR of 18.6% in car sales from FY81-FY90. After witnessing a downturn from FY90 to FY93, car sales bounced back to register 17% growth rate till FY97. Since then, the economy slumped into recession and this affected the growth of the automobile industry as a whole. As a result car sales remained almost stagnant in the period between FY97 and FY99. However, with the revival in the economy, FY2000 turned out to be a significant year for the industry in which it recorded volume sales of 638,815 units as against 409,951 units in the previous year. Thus, the CAGR for the period FY96 - FY2000 stands at 16.6%. On the basis of price, the Indian car industry can be classified into economy or the 'small' car (upto Rs0.3mn), mid-size (Rs0.3-0.5mn), luxury car (Rs0.5-1mn) and super luxury car segments (above Rs1mn). Economy segment dominates with a market share of about 80% of total car sales in FY2000. Taking into consideration the rise in expendable income levels and necessity of personal transportation as a result of inefficient or deficient public transportation means, the demand for cars is expected to increase. FY2000 was an indicator of the growth phase to follow, registering a 20 year high growth rate of 56%yoy. The second highest growth was recorded in 1985 at 42%yoy when Maruti had entered the market. Riding on the popularity of the small car segment, coupled with the boost in sales of the mid size segment, total sales grew by 56%yoy. However, such high levels of growth is highly unsustainable in the long run given the fact that there is as yet unutilized capacities in the industry. This would make the question of survival important and carmakers would have to play their cards well to remain in contention. Moreover, sales growth in FY2000 was calculated on a lower base of FY99. Keeping in mind these factors, one could predict a demand growth of 15-20%yoy in the years to follow. Going by this trend, the demand for cars during FY2001 would be around 670,755 units. Exports are expected to increase as a result of over capacity in the domestic car industry and the government's policy to bring in a more liberal regime on the foreign exchange front. The flood of new entrants into the car industry as a result of liberalization has led to a complete transformation of the sector. The car segment is flooded with new models from new and existing players, a visible shift from a constrained supply situation to a surplus. In the last decade or so, as many as 30 models have invaded the market making it a case of embarrassment of riches. Moreover a lot many models are waiting to hit the ramp by the end of the year. The capacity of car production has increased substantially in the last three years and is expected to grow manifold in the coming years. The capacity for car production in the country is expected to increase from around 750,000 in FY99 to 1,210,000 in FY01. The industry will, thus, witness substantial over capacity in the next few years. The low capacity utilization will force a marketing war between the car manufacturers. The industry may also witness a shake out resulting in withdrawal of players from the segment in the next three years. The car buyer will be the major beneficiary of the marketing war in the segment as they will be able to get technologically better products at good terms and conditions. But with a expected shake out, the threat of discontinuation of a model is also high.
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