ICRA predicts small growth in 2014-15, and low profitability

Rating Agency ICRA does not see much optimism in the Indian passenger vehicle industry in the months ahead. ICRA predicts that the Indian vehicle industry domestic volumes are set to increase, but only marginally in 2014-15 due to weak demand that has not only affected the small car segment but also the utility vehicle segment.

ICRA predicts just marginal growth in the passenger vehicle segment in the months ahead. The small car segment controls about 55 to 60 percent of industry volume. Industry’s operating margin is currently under extreme pressure following weak volumes and reduced pricing power and it is this that will have a direct impact on domestic volumes in the future.

cars-in-India11 months of FY 2013-14 saw Indian passenger vehicle industry record sales of 2.3 million units, a decline of 6% YoY. These figures were preceded by 5.1% in 2011-12 and 2.2% in 2013-13 with the main reasons for its downfall being sluggish demand, higher inflation and rising interest rates not to leave out ever escalating fuel prices. All these factors have had a direct impact on disposable incomes of customers, making them cautious of making new purchases.

ICRA has also taken into account rising employee costs, wage hikes, discounts being offered by auto majors to boost sales and intense competition in the market. The recent excise cuts announced in the interim budget were looked upon as a silver lining to see increased demand but that too failed to see much promise and have added reasons for not expecting too much from Indian domestic passenger vehicle market.