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Sales growth down despite incentives, cheap funds

Sales growth down despite incentives, cheap funds
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First Published: Wed, Apr 08 2009. 10 39 PM IST

Updated: Wed, Apr 08 2009. 10 39 PM IST
New Delhi: Spurred by cheaper financing and two government stimulus packages in the last two quarters of the fiscal year gone by, India’s auto companies managed to post marginal growth in the year ended 31 March, data from an industry body showed.
But this was still not enough to avert a significant slowdown in growth.
Surviving slowdown: Employees at Mahindra and Mahindra’s special military vehicles facility in Faridabad. M&M, country’s largest maker of sport-utility vehicles, is the best performer, having advanced 64%. Rajkumar / Mint
Fiscal 2009 saw sales increase at their slowest pace in seven years, according to the Society of Indian Automobile Manufacturers, or Siam. Car sales gained 1.3% to 1.22 million in the fiscal year ended 31 March from 1.2 million a year earlier.
A small jump in sales volumes in the March quarter is expected to result in auto makers posting better than expected earnings for the fiscal gone by.
“We expect margins for our auto universe to expand by 200 basis points quarter-on-quarter,” brokerage Motilal Oswal Securities Ltd wrote in a report. Another brokerage, Prabhudas Lilladhar Pvt. Ltd expects two-wheeler makers to register better profitability from this quarter due to lower raw material costs.
Siam expects passenger vehicle sales to grow as much as 5% this year. Dilip Chenoy, director general, Siam cautioned that the number could be revised if the global economy continues to deteriorate.
Subdued demand will remain a challenge for the automobile industry in the next few months, said Chetan Vora, an analyst at Brics Securities Ltd in Mumbai. The stimulus measures and interest-rate cuts will boost demand in the second half of the fiscal year.
Also See Auto Growth (Graphic)
Car sales growth last fiscal year lagged behind the 12% pace of expansion in the previous year. A weakening economy and job losses hurt demand in six of the last 12 months. The slump in July 2008 was the first since 2005.
The Reserve Bank of India has cut its benchmark interest rate to the lowest in at least eight years. Still, central bank governor D. Subbarao has expressed concern that the cuts are not being passed on to consumers and said he will examine the issue.
India’s economy grew 5.3% in the three months to 31 December, the weakest pace of expansion since the last quarter of 2003, after 7.6% growth in the previous quarter and 7.9% in the three months before that.
The top concerns are liquidity, working capital finance and interest rates, Chenoy said. Two out of three cars in India are bought on credit.
Maruti Suzuki India Ltd, maker of half the cars sold in the country, boosted sales 1.44% to 722,144 units from 711,824, Siam said. Hyundai, the second largest car maker in India, increased sales 12.7% to 244,080 from 216,495.
The country’s economic stimulus plans, which included tax cuts, helped the industry and without that growth would have been stagnant or dropped by 3%, he said.
Shares of Maruti have gained 55% in 2009, making them the second-best performer in the benchmark stock index of the Bombay Stock Exchange. Mahindra and Mahindra Ltd, India’s largest maker of sport-utility vehicles, is the best performer, having advanced 64%.
Industrywide vehicle sales, including cars, vans and sport- utility vehicles, gained 0.1% to 1.55 million, Siam data shows. Commercial vehicle sales declined 21.1% to 384,122 from 486,817 and sales of scooters and motorcycles rose 2.6% to 7.44 million from 7.25 million.
Among the car makers that reported lower sales are the local units of Ford Motor Co. and Honda Motor Co.I
Investment pledges by companies from the start of the last financial year till the fiscal year ending March 2011 are mostly on track, Chenoy said. Only four companies have talked about postponement and rescheduling the investments.
Higher demand in India contrasts with declines elsewhere. US auto sales tumbled 37% in March. New autos sold at an annual rate of 9.86 million units, according to sales tracker Autodata Corp. of Woodcliff Lake, New Jersey. Japan’s auto sales dropped 32% in March to the lowest level in 35 years as the economic recession exacerbated slumping domestic demand.
Growth in India may revive this fiscal year as Tata Motors Ltd, India’s largest commercial vehicles maker, introduces the Nano car priced as low as Rs123,360 and other carmakers unveil new models, said Chenoy. Bookings for the car begin Thursday while sales will start in July.
Mint’s Samar Srivastava contributed to this story.
Graphics by Sandeep Bhatnagar / Mint
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First Published: Wed, Apr 08 2009. 10 39 PM IST