Mumbai: Passenger vehicles sales in India, the world’s fifth largest car market, are expected to expand at a faster pace over the next five years as pay raises for government employees, courtesy the 7th Pay Commission, and a recovery in rural incomes boost demand for personal transport.
Low fuel prices and interest rates are also likely to encourage purchases.
Despite the shock currency invalidation in November that sucked out 86% of money in circulation, passenger vehicles sales in India advanced 9% in fiscal 2016-17—the quickest in six years, crossing the 3-million mark for the first time, auto industry lobby group Society of Indian Automobile Manufacturer (Siam) said last month. The research arm of rating agency ICRA Ltd on Tuesday said it estimates passenger vehicles sales in India to grow by 9-10% in the current fiscal year and a 9-11% mean annual growth rate over the next five years. Others are equally bullish.
In a 28 April report, Binay Singh and Satyam Thakur, analysts at Morgan Stanley Research, said they expect the five-year rolling volume CAGR to be 5% and 8% in fiscal 2018 and 2019, respectively, after an extended period of sluggish growth.
“The five-year rolling volume CAGR for the passenger vehicles segment was 3% for fiscal 2012-17, close to the lowest over the last 20 years,” they wrote. While volume growth showed signs of improving in fiscal 2016-17, demonetization affected the growth trajectory, they wrote. “With the effects of demonetization now behind, we believe that in fiscal 2017-18 and onward, the passenger vehicles sales recovery story will play out,” they added.
A stronger-than-expected revival in domestic sales in fiscal 20171-18 will be driven by a higher-than-expected boost from the 7th Pay Commission recommendations and strong recovery in rural demand.
To be sure, car makers are already gearing up to ride the high-growth phase and Maruti Suzuki India Ltd will be one of the key beneficiaries as well as a driver of the growth momentum.
“We remain positive on Maruti, as we expect strong volume growth in FY18-19 driven by implementation of the 7th Pay Commission and a strong model cycle,” wrote Sonal Gupta and Kohei Takahashi, analysts at UBS Global Research in a 28 April report.
The local arm of the Japanese car maker sold 1.5 million cars (including exports) in fiscal 2016-17, an increase of 10% from the previous year, and double sales in less than a decade, chairman R.C. Bhargava told reporters after the company reported its March quarter earnings on 27 April.
Hyundai Motor India Ltd, the country’s second largest car maker, has outlined an investment of Rs5,000 crore as it looks to double its sales in India to 1 million units by 2021. The company also plans to introduce eight models by 2020, including three models in the compact, small sport utility vehicle (SUV) and hybrid segments, Y.K. Koo, managing director at the company, told reporters on 21 April. The company expects to sell 682,000 units in 2017-18.
Tata Motors Ltd, which has seen sales surge in the last six months on back of new models, has an ambitious sales target of 250,000 for the current year, up 50% from last year, Mint reported on 27 April.
Puneet Gupta, associate vice-president at market researcher I.H.S Markit, said the months following implementation of the goods and services taxes could see slower sales as there is not enough clarity on the duty structure and its impact on vehicle prices. It’s also likely to lead to postponement of model launches.“We expect hiccups in the September quarter and sales to pick up again once the new duty structure is established,” he said.