The Good and Bad of Indian PV Industry (Passenger Vehicle)

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Here is an infographic showcasing the Indian PV Industry and the market share of OEMs in the Indian Domestic Passenger Vehicle (PV) Segment in FY20.

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After a healthy growth run over FY14-19 registering a CAGR of 6.2%, the domestic PV segment witnessed a sharp turnaround in FY20 owing to several concerns (NBFC crisis, weak rural income, rise in petrol and diesel prices, regulatory norms) plaguing the PV industry.

The COVID-19 pandemic further deteriorated the volumes in March.

The overall impact of this resulted in an 18% decline in volumes for the domestic PV industry in FY20.

Additionally, some of the players witnessed intense competition in their segment, for instance, M&M who is a strong player in the Utility vehicle segment (part of the PV industry) witnessed stiff competition from new entrants (Kia and MG Hector) resulting in market share loss of 80bps in FY20.

The market leader Maruti largely maintained its market share due to its strong presence in the entry-level segment.

The growth outlook for the PV industry definitely looks promising but one can safely say that it will not be a smooth ride.

First, let’s delve into the good part that is working for the PV industry currently.

  • Interest rates are heading lower thanks to a slew of rate cuts by the RBI in the recent past. Generally, PV industry does well in the low-interest rate scenario as nearly 80% of cars are financed
  • The COVID-19 pandemic has definitely made people think twice about shifting to personal mobility rather than public transport. There is no conclusive evidence until now that the shift is happening. But definitely, more people would be swayed towards personal mobility
  • The rural economy which has been one of the biggest drivers of growth in the PV industry has remained largely unaffected as suggested by the strong growth in tractor volumes. Further, the normal monsoon and better sowing activity augurs well for the rural economy and thereby the PV industry as well
  • The long-term growth story still remains intact with increased penetration of cars in India and higher affordability

Well, as we said, it is not going to be a smooth ride.

So let’s look at some of the headwinds facing the industry:

  • The petrol and diesel prices have been on the rise as the government looks to make up for the revenue lost due to COVID-19 led lockdown. And India, being a highly mileage sensitive market, this works as a deterrent
  • While the regulatory norms (BS-VI and insurance cost) are behind us, there is still a lot of confusion or chaos in the mind of the consumer regarding possible GST rate cut on autos, EV vehicles adoption, etc. This stalls the purchasing of the vehicle by the consumer
  • Even though the economic situation has improved, the pandemic is still not over which raises the question of the sustainability of re-opening of the economy which will also hurt the PV industry
  • The rural economy recovery is definitely a positive sign but questions are being raised now on whether it can last as the infections have now started to spread into smaller cities and villages. Plus, the government has limited fiscal space to support the rural economy
  • The lockdown has impacted most businesses drastically and there is a strong possibility of down trading by the consumers, meaning if a customer wanted to buy a sedan could possibly down trade to lower models.

In conclusion, while there are positives, but these negative aspects should not be ignored while investing in PV focused stocks which have seen considerable run-up recently along with other auto names as well.

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Cover Image: Indian Express

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Monergise helps you stay updated with the current trends and make better investment decisions. All the articles are written by a group of finance professionals having experience of more than 10 years in Indian markets.
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