New Delhi/Mumbai: Auto sales growth rates may slow in the coming quarters of the current fiscal as the low base effect of last year starts wearing off, according to the Society of Indian Automobile Manufacturers (Siam), which released its monthly and quarterly sales figures on Thursday.
“We do expect that the kind of growth witnessed in Q1 (of FY 2011) will not continue in the second, third and fourth quarters,” said Pawan Goenka, president, Siam, and president, automotive sector, Mahindra and Mahindra Ltd.
Sales were also buoyed by the launch of eight new models and the introduction of 11 new variants of existing models, he added. He maintained that while the excise duty hike of 2% did not slow down sales, matters were also helped by a stable retail interest rate and an absorption of increase in commodity prices by manufacturers.
“Of course, going forward, if interest rates were to be hiked, they could have an impact on demand,” said Goenka.
Graphic: Paras Jain/Mint
For the quarter ended 30 June, passenger car sales rose 33.43% over the same period last year with sales of 433,641 units, while truck sales grew 56.34% to notch up sales of 126,737 units against 79,784 units.
Monthly sales figures for June show passenger car sales at?141,184?units, up 30.7% year-on-year while truck sales grew 45.5% in June to 43,721 units.
Total commercial vehicle (CV) sales—including buses—for June stood at 52,211 units, up 44.14% from the corresponding month last year, while two-wheeler sales stood at 933,101 units, an increase of 32% over sales in June 2009.
Industry lobby group Siam, which also came out with a sales outlook for the first time, says the passenger car segment is expected to see a growth of 12-13% this year over FY2010 while the commercial vehicles segment, including buses, will see an overall growth rate of 17-18% in the current fiscal.
“These growth rates factor in supply constraints as well,” said Goenka.
According to Goenka, rising commodity prices, such as those of natural rubber and pig iron, will pose a challenge in sustaining the current growth rates. “The first six months of this year have seen natural rubber prices appreciating 40% while pig iron prices have gone up by 25%,” he added.
He, however, discounted any sustained effect of the sharp rise in fuel prices due to partial de-control and the increase in administered prices. “It will be a slight negative (factor), but there won’t be a long-term impact,” he said.
Passenger vehicle exports saw a slight decline, on the back of the European economic crisis that saw the country’s car makers exporting 37,432 units in June this year against 38,297 units for the same month last year. Two-wheeler exports rose 59.7% to 139,145 units.
Goenka expects the Southeast Asian and South American markets to take up the slack as Europe falters to keep the exports segment growing.
Vineet Hetamasaria, vice-president research at Mumbai-based brokerage Pincmoney which is a fully-owned subsidiary of Pioneer Investcorp., said the high base effect will wear off from this quarter onwards.
He expects the passenger car and two-wheeler industry to grow at 22% to 23%, lower by 8% in the next two to three months. However, the low base effect will continue for commercial vehicles, he said.
According to Hetamasaria, a potential increase in the interest rates is unlikely to deter demand owing to the strong underlying demand.
The demand has been strong despite most auto makers having hiked prices in the last three months, he said. “An increase of 100-150 basis points will not impact sales,” he added.
One basis point is one-hundredth of a percentage point.
Sugato Sen, senior director, Siam, however, had a different take. “Any changes in the policy decision to rein in inflation and hike interest rates will be a deterrent for auto sales.”
In India, at least 70% of cars and 100% of commercial vehicles are bought on credit.
In a June 18 report, Chirag Shah, an analyst at Emkay Global, said demand for passenger vehicles is likely to accelerate over the next five years, seeing a compounded annual growth rate of 20% to 4.9 million units, with an upward bias. He cited lower penetration ratio in semi-urban areas, where auto makers still have a limited presence, to be the key reason.
Jatin Chawla, an analyst at India Infoline Ltd, said the deregulation of petroleum prices will not have an impact on diesel vehicle sales.
However, if diesel prices are also freed, it will reduce the price gap with petrol and diesel-run vehicles may lose their advantage.
“Diesel vehicles have a higher acquisition cost and a buyer might not pay more if the prices are deregulated, ” he said.