- ICRA has revised upward its growth outlook for FY2017e from 8.5%-9.5% earlier to 10%-12% range for FY2017e, in the backdrop of better than expected ramp-up in demand momentum.
- ICRA expects domestic PV sales growth to accelerate to 10%-12% during FY2017 and maintains a 9%-10% CAGR estimate over the next five fiscals.”
- ICRA sees overall capacity utilization level in the industry remains modest; however, the statistics vary significantly across OEMs.
- Some OEMs like MSIL and Hyundai are currently operating at near full capacity whereas some other OEMs are operating below 30% capacity and incurring operating losses. In order to address the capacity utilization issue, OEMs like GM, VW, Ford and Nissan have started using Indian operations as an export hub for small cars which has helped them improve the overall utilization of the Indian operations.
- Barring exception of few players, industry’s profitability metrics are unlikely to witness material improvement in the near term, despite improved prospects of sales volume growth
ICRA has revised upward its growth outlook for FY2017e from 8.5%-9.5% earlier to 10%-12% range for FY2017e, in the backdrop of better than expected ramp-up in demand momentum. The stellar growth in last few months was driven by low cost of ownership, payout of 7th pay commission as well as normal monsoon after two consecutive deficient years of rainfall.
According Mr. Subrata Ray, Sr. Group VP, Corporate Sector Ratings, ICRA Ltd, “The FY2017 performance will also benefit from the lower base of FY2016, as a majority of successful launches happened during H2FY2016 and hence didn’t contribute to the full-year volume. Given the low penetration levels in the country, the long-term prospects of the industry remain favorable. ICRA expects domestic PV sales growth to accelerate to 10%-12% during FY2017 and maintains a 9%-10% CAGR estimate over the next five fiscals.”
ICRA has upward revised its domestic PV growth outlook for FY2017 to 10%-12% from 8.5%-9.5% earlier. ICRA sees overall capacity utilization level in the industry remains modest; however, the statistics vary significantly across OEMs. Some OEMs like MSIL and Hyundai are currently operating at near full capacity whereas some other OEMs are operating below 30% capacity and incurring operating losses. In order to address the capacity utilization issue, OEMs like GM, VW, Ford and Nissan have started using Indian operations as an export hub for small cars which has helped them improve the overall utilization of the Indian operations. Barring exception of few players, industry’s profitability metrics are unlikely to witness material improvement in the near term, despite improved prospects of sales volume growth in view of (a) need for expenses towards new product development, (b) increase in employee expenses and (c) likely sustenance of discounts-led sales push resulting from restricted pricing power in the wake of intense competition.
In ICRA’s view, the market share in the domestic PV segment is expected to remain concentrated over the medium term, with the top five players constituting over 80% of the overall market. This implies that profitability pressures on the relatively low volume players may be even higher, resulting in sustained dependence on external financing to fund losses and capital expenditure requirements. Nevertheless, players having low volume in the domestic market can leverage on labour arbitrage present in the Indian market and develop Indian facilities as an export hub for their small car requirement globally.
