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MOTORINDIA
l August 2012
A moderation in industrial activity and
an expected slowdown in infrastructure
spending are likely to restrict medium
and heavy CV (MHCV) volume growth
to between three per cent and five per
cent this year. Light commercial vehi-
cles (LCVs), which are more dependent
on consumer non-discretionary activi-
ties and less on industrial activity, are
expected to achieve volume growth of
18-20 per cent this year.
The increasing number of competitors (currently 27
players in the cars/utility/commercial vehicles segment
and nine in the two-wheeler segment) may structurally
affect operating margins in the industry. Players are
likely to face difficulties in passing cost increases on
to customers, and instances of prices being cut to boost
demand are likely to rise.
Overcapacity
Significant increases are expected in production
capacity for PVs (10 per cent) and CVs (25 per cent).
As a result, industry utilisation rates should decline
considering muted demand growth. Capacity additions
to protect market share in the face of increased compe-
tition are likely to continue in 2013-2014. The capacity
overhang in the medium term should add to pressure
on margins, which are already being hit by cyclical fac-
tors such as demand moderation and structural changes
such as increased competition.
A continuation of the high interest rate environment
or a downward revision in economic activity would
significantly affect the credit metrics of companies,
particularly the original equipment manufacturers
(OEMs) in the MHCV segment. In the case of PVs,
the volume growth rate may be negative if consumer
purchasing power is further weakened due to continued
high consumer inflation coupled with a less-than-com-
mensurate rise in income levels.
At the same time, a revision in the outlook to positive
AUTO INDUSTRY