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Automobiles sector entering a sweet spot?
February 4, 2016
1
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P: Projected
Notes:
1) All numbers pertain to domestic market.
2) 2012-13 and later year numbers for cars exclude sales of Audi, BMW and Daimler
3) Yellow denotes forecast
4) Numbers in brackets denote unit sales for 2014-15
Source: CRISIL Research
2
18
-2
-20
-3
5-77-9
5
1
-5
4
9-11
11-1314
3
7 8
2-4
10-12 11
-2
20
-13
(7)-(9)
14-16
20
11-1
2
20
12-1
3
20
13-1
4
20
14-1
5
20
15-1
6 P
20
16-1
7 P
20
11-1
2
20
12-1
3
20
13-1
4
20
14-1
5
20
15-1
6 P
20
16-1
7 P
20
11-1
2
20
12-1
3
20
13-1
4
20
14-1
5
20
15-1
6 P
20
16-1
7 P
20
11-1
2
20
12-1
3
20
13-1
4
20
14-1
5
20
15-1
6 P
20
16-1
7 P
Commercial Vehicles(0.62 mn units)
Cars and UVs(2.6 mn units)
Two Wheelers(15.9 mn units)
Tractors(0.55 mn units)
gro
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in
per
cen
t
Demand recovery across segments in 2016-17;
monsoon remains key monitorable
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Regulatory landscape (1/2)
4
Cars and UVs
Current Scenario
Emission norms
BS-IV norms applicable in 63 cities.
April 1, 2017 deadline for applicability for entire country
BS-VI norms applicable from April 2020
Intermediate BS-V to be skipped
Impact
Diesel vehicle prices to increase more steeply compared with petrol vehicles; price hike based on engine
capacity
No new capacities required, only technology to be upgraded for existing platforms
Multinational companies have technology but will have to incur cost for implementing across platforms;
homegrown players to invest in R&D or borrow technology
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Regulatory landscape (2/2)
Commercial Vehicles
Current Scenario
2015-16: Bus Body Code, Mandatory ABS and speed arresters, BS-IV implementation in North India,
NGT ban on diesel vehicles > 10 years in NCR
Future:
– BS-IV applicable in the south and a few states in the west in April 2016 with pan India applicability
in April 2017
– Skipping BS-V and adopting BS-VI by April 2020
Impact:
2015-16: MHCV sales preponed to Sep 2015 which saw a 60% y-o-y increase; Bus sales rose by 50%
in July 2015
Future:
– Preponement of MHCV replacement demand to March-April 2017
– No new capacities required; few powertrains, however, may not able to support BS-VI
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Cars & UVs
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Small cars to drive PV growth in 2016-17
E: Estimated ; P :Projected
Notes:
1) All numbers pertain to domestic market. 2012-13 and later year numbers exclude sales of Audi, BMW and Daimler.
2) Yellow denotes forecast.
3) Numbers in brackets denote unit sales for 2014-15.
Source: SIAM, CRISIL Research
6
Rise in disposable income, stable cost of ownership and pay commission to drive sales in 2016-17
Growth momentum to accelerate in 2016-17 backed by an improvement in economic growth, rural
demand and lower cost of ownership; Implementation of the seventh pay commission will provide
an additional kicker to growth
Sedan growth to moderate due to stiff competition from compact utility vehicles (UVs)
(1)
0
(1)
4
11-13 12-14
20
(34)
(25)
14 7-9 6-8
13
32
(9)
1 3-5
8-10
5 1
(6)
4 9-11
11-13
20
11-1
2
20
12-1
3
20
13-1
4
20
14-1
5
20
15-1
6 E
20
16-1
7P
20
11-1
2
20
12-1
3
20
13-1
4
20
14-1
5
20
15-1
6 E
20
16-1
7P
20
11-1
2
20
12-1
3
20
13-1
4
20
14-1
5 E
20
15-1
6 E
20
16-1
7P
20
11-1
2
20
12-1
3
20
13-1
4
20
14-1
5
20
15-1
6 E
20
16-1
7P
Small Cars(1.62 mn units)
Sedans(0.26 mn units)
Uvs & Vans(0.73 mn units)
Cars& Uvs(2.60 mn units)
gro
wth
in
per
cen
t
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Compact cars and UVs garner consumer interest
Premium hatchbacks (positioned between hatchbacks and entry-level sedans) have seen strong
growth, thereby expanding the share of the compact segment
Compact UVs have attracted sedan customers with aggressive pricing, premium features and
petrol variants
Notes:
1) YTD: April-November
2) Compact sedan includes Hyundai Xcent, Honda Amaze and Maruti Swift Dzire.
3) Compact UV includes Ford Ecosport, Renault Duster, Hyundai Creta, Maruti S cross and Mahindra TUV300.
Source: SIAM, CRISIL Research
30% 27% 23% 24% 21% 20%
33%33% 36% 39% 41% 44%
6%7%
3%2% 2% 3%
10%9% 7% 8% 7%
0% 0%
0% 2% 2%5%
13% 14%21% 19% 19% 15%
9% 9% 9% 8% 7% 6%
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16YTD
Micro & Mini Compact Compact sedans Sedans Compact Uvs Other Uvs Vans
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Player interest, model launches rise across segments
Source: CRISIL Research
Reducing life of models and shortening model
refreshment cycles impacting costs
R&D spends of leading Indian players now
average closer to global players at 4-6 per cent
of total revenues
UV segment has seen maximum action in
terms of player interest and new model
launches
SegmentsBest selling Models
Share in
overall sales
Small Cars
2009-10 Alto WagonR I-10 42%
2012-13 Alto Swift Wagon R 41%
2015-16 YTD Alto Dzire Swift 38%
Sedans
2009-10 DzireHonda
CityVerna 53%
2012-13 Dzire Verna Etios 46%
2015-16 YTDHonda
CityCiaz
Dzire
Tour62%
Utility Vehicles
2009-10 Bolero Innova Scorpio 60%
2012-13 Bolero Ertiga Innova 49%
2015-16 YTD Bolero Ertiga Innova 33%
7
13 14
14 13 14
21
14
31 33
15 17 20
4462
20
07-0
820
08-0
920
09-1
020
10-1
120
11-1
220
12-1
320
13-1
420
14-1
520
15-1
6Y
TD
20
07-0
820
08-0
920
09-1
020
10-1
120
11-1
220
12-1
320
13-1
420
14-1
520
15-1
6Y
TD
20
07-0
820
08-0
920
09-1
020
10-1
120
11-1
220
12-1
320
13-1
420
14-1
520
15-1
6Y
TD
Small cars Sedans Uvs
No. of players No of models
10
Rising competition and shortening model life
impacting costs of car & UV players
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Growth to remain healthy in the long-term
Passenger vehicles growth potential remains high given low PV penetration (18 per 1,000 people
as of FY15)
Manifold expansion in addressable market with rising incomes and low cost of ownership
Rising rural penetration to support growth in small car sales
Higher real GDP and stable cost of ownership to drive
long term PV salesAddressable households to jump by over 50 million
P: Projected
Numbers represent 5-year CAGRs
Source: SIAM, CRISIL Research
HH: Household, E: Estimated; P: Projected
Source: CRISIL Research
238262
285
31
64
115
12 2235
2009-10E 2014-15E 2019-20P
Total Households (mn) Addressable households (mn)
Total passenger vehicle population (mn)
13%
6%
11-13%
FY 05-10
FY10-15
FY15-20
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Two-wheelers
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Weakness in rural income hurting motorcycle sales; pick-up seen only in H2 2016-17 if monsoon is
normal
Scooter sales, though moderating, is expected to improve due to:
– Improving rural and semi-urban infrastructure
– Rising proportion of women in the workforce
– Improving mileage
Income boost provided by Seventh Pay Commission to buoy demand; scooters could benefit more
E: Estimated ; P :Projected
Note: Figures in bracket indicate domestic sales volume in 2014-15.
Source: SIAM, CRISIL Research
12
04 3
0-(2)
6-8
24
14
2325
12-14
17-19
11
2
-8
3
(2)-(4)
3-5
20
11-1
2
20
12-1
3
20
13-1
4
20
14-1
5
20
15-1
6 E
20
16-1
7P
20
11-1
2
20
12-1
3
20
13-1
4
20
14-1
5
20
15-1
6 E
20
16-1
7P
20
11-1
2
20
12-1
3
20
13-1
4
20
14-1
5
20
15-1
6 E
20
16-1
7P
Motorcycles(10.7 mn units)
Scooters(4.5 mn units)
Mopeds(0.74 mn units)
gro
wth
in
per
cen
t
Gradual recovery in two-wheeler sales projected in
2016-17
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73 85 9767 82 96
49
67
80
0
10
20
30
40
50
60
70
80
90
0
20
40
60
80
100
120
2009-10 2014-15 2019-20P
Urban Total HH (millions) Add. HH (millions) TW penetration (per cent of add. HH) (excl. mopeds) (RHS)
Urban markets: Limited scope for growth
P: Projected; HH: Household; TW: Two-wheeler
Source: SIAM, CRISIL Research
161 173 18373 103 142
29
39
50
0
10
20
30
40
50
60
0
20
40
60
80
100
120
140
160
180
200
2009-10 2014-15 2019-20P
Rural Total HH (millions) Add. HH (millions) TW penetration (per cent of add. HH) (excl. mopeds) (RHS)
Rural markets: Good potential for further growth
Long term demand growth to remain
stable
2019-20 P
Segment Volumes
('000s)
5 yr
CAGR
Motorcycles 15,067 6-8%
Scooters 9285 14-16%
Mopeds 954 4-6%
Total two-wheelers 25306 8-10%
Source: SIAM, CRISIL Research
Rural market and scooters segment to drive to
two-wheeler industry long-term growth
12
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Competition heating up as players jostle for market
share
Shift from executive motorcycles to economy at the lower-end and to premium motorcycles at the higher-
end
Success of Bajaj’s CT 100 (launched in latter part of 2014-15) brings it closer to Hero in economy segment
Hero has further consolidated its share in high-volume executive segment, backed by its flagship
Splendor, Passion and Glamour brands; Bajaj’s market share declining as Discover’s relatively weak
performance continues
Competition heating up in premium segment with Royal Enfield and Yamaha outperforming peers; Bajaj
remained market leader with Pulsar and KTM series but its share is declining due to stiff competition
Change in market share of players in motorcycle segment
YTD: Year-to-date
Source: SIAM, CRISIL Research
24%37%
14%4%
37% 38%
56%46%
61%72% 11% 7%
18% 16%
0% 1%
8% 13%
20% 22%18% 2%
12%24%
5%
2013-14 2015-16YTD 2013-14 2015-16YTD 2013-14 2015-16YTD
Economy Executive Premium
Bajaj Hero Tvs Yamaha Honda Royal Enfeild Suzuki Others
13
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Commercial vehicles
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Overall CV sales to accelerate in 2016-17
Despite lower growth trajectory, MHCV sales to sustain at healthy levels in 2016-17
– Growth forecast to moderate over a high base due to slowdown in replacement demand by LFOs despite modest
improvement in macro economic signals (industrial growth, infrastructure projects, mining activity & agricultural output)
LCV sales to recover slightly in 2016-17 on higher consumption spends and improved financing
availability
– Subdued rural income and high NPAs of financiers to limit the recovery over a low base
E: Estimated; P: Projected
Source: SIAM, CRISIL Research
30
16
-18-13
(3)-(5)
4-69
-26 -27
2122-24
10-126
-4
-14
0
11-137-9
18
-2
-20
-3
5-7 7-9
-40
-30
-20
-10
0
10
20
30
40
20
11-1
2
20
12-1
3
20
13-1
4
20
14-1
5
20
15-1
6E
20
16-1
7P
20
11-1
2
20
12-1
3
20
13-1
4
20
14-1
5
20
15-1
6E
20
16-1
7P
20
11-1
2
20
12-1
3
20
13-1
4
20
14-1
5
20
15-1
6E
20
16-1
7P
20
11-1
2
20
12-1
3
20
13-1
4
20
14-1
5
20
15-1
6E
20
16-1
7P
LCVs(0.34 mn units)
MHCVs(0.20 mn units)
Buses(0.08 mn units)
CV domestic volumes in2014-15 (0.62 mn units)
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Moderate growth expected in long term
CV sales to rise 10-13% CAGR over a low base in 2014-15 on gradual revival in
economic growth
Competition from Railways to increase in long-term, post commissioning of DFCs
Key long term trends to watch out for are: GST implementation, dedicated freight
corridors’ (DFCs) project progress, and changes in emission and scrappage norms
P: Projected
* 2011-12 was peak in terms of CV sales volumes
Source: CRISIL Research
Long term demand
Segment2014-15 over 2009-10
(5-year CAGR in %)
2019-20P over 2014-15
(5-year CAGR in %)
2011-12
(volumes in 000s)*
2019-20
(volumes in 000s)
Commercial vehicles (domestic)
LCV (goods) 6.2% 11-14% 411 608
MHCV (goods) -0.4% 10-12% 299 330
Buses 0.7% 8-10% 99 126
Total (growth / units) 2.9% 10-13% 809 1064
16
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Tractors
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Source: TMA, CRISIL Research
15.6%
28.9%
17% (15.5)%
(10)%
(20)%
10%(7)%
(9)%
(15.5)%
(5)%
(2)%
11-14%
16-19%
11-13%
15-17%
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
North West East South
Sales units
2013-14 2014-15 2015-16 P 2016-17P
- High tractor penetration
- UP and Punjab to drive the revival
in FY17
- Replacement demand in this
highly penetrated region will also
be a driving factor
- Sales volumes to be stable in
Rajasthan
- Maharashtra and MP to be
laggards due to deficient
rainfall and poor irrigation
infrastructure
- Lower base will help propel
FY17 growth rates
- Low tractor penetration
- Increased focus of government on
agri development to support sales
volume in FY16
- Better impetus given by financiers
to boost demand
- To show resiliance in FY16 as
compared with other regions
- Andhra Pradesh to lead on the
back of better rabi expectations
in FY16. Better irrigation also to
improve sentiments
- Tamil Nadu to lead, most of
which will be replacement sales
Sales growth to pick up modestly across regions in
2016-17; South and West to outperform
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Increasing mechanisation needs to drive growth over
next 5 years
10%12%
13%11% 12%
16%
6%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
0
100
200
300
400
500
600
700
800
90020
08-0
9
20
09-1
0
20
10-1
1
20
11-1
2
20
12-1
3
20
13-1
4
20
14-1
5
20
19-2
0P
(in '000s)
Un
its in
'000s
Tractor Domestic sales Rolling 5 year CAGR (RHS)
Key growth drivers between FY09 & FY14 (16 per cent
CAGR)
Key growth drivers between FY15 & FY20 (8-10 per cent
CAGR)
10-15 per cent growth in MSPs High growth in MSPs not sustainable
NREGA scheme led to limited availability of farm labourPurchase of better seeds leading to better farming methods
and increasing use of implements
Increasing land prices leading to purchase of commercial
assets with extra income
Predominant use in land preparation and haulage; tractors
extending to other farming activities
Increasing availability of finance & more private financers Gradual evolution of agriculture practices in India such as
lease farming, contract farming, cooperatives and producer
companies to support gradual penetration in fragmented landsFinancing for used tractors, especially in the North, leading to
shortening of replacement cycles
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Automobile sector structurally in a sweet spot with real income growth expected to
accelerate and cost of ownership* of automobiles expected to remain more or less flat
Passenger vehicle sales growth to further accelerate in fiscal 2017
− Better economic growth, rural demand, stable cost of ownership and model launches to drive offtake
− Implementation of Seventh Pay Commission seen as additional growth driver; small cars to benefit
MHCV growth momentum to decelerate in fiscal 2017
− Strong growth in MHCV sales to moderate over a high base (as regulatory changes preponed demand
to fiscal 2016) despite improvement in macro economic parameters
− LCV sales to gradually revive in H2 2016-17 assuming normal monsoon and improvement in financing
scenario
Two-wheeler demand to gradually recover in fiscal 2017
− Motorcycle sales pick up seen only in H2 2016-17 and that too, only if monsoons are normal
− Scooter sales propelled by structural factors (improving rural/semi-urban road infrastructure &
consumer preference); Seventh Pay Commission implementation to further boost sales
* Includes all costs incurred for purchasing an automobile and running it regularly
Structurally in a sweet spot, but monsoons the key for some segments
Key messages
20
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About us
CRISIL Limited
CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost
provider of high-end research to the world's largest banks and leading corporations.
CRISIL's majority shareholder is Standard and Poor's (S&P). Standard & Poor's, a part of McGraw Hill Financial, is the world's foremost provider of credit ratings.
CRISIL Research
CRISIL Research is India's largest independent integrated research house. We provide insights, opinion and analysis on the Indian economy, industry, capital markets and
companies. We also conduct training programs to financial sector professionals on a wide array of technical issues. We are India's most credible provider of economy and
industry research. Our industry research covers 86 sectors and is known for its rich insights and perspectives. Our analysis is supported by inputs from our network of more
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provider of valuation of fixed income securities to the mutual fund, insurance and banking industries in the country. We are also the sole provider of debt and hybrid indices
to India's mutual fund and life insurance industries. We pioneered independent equity research in India, and are today the country's largest independent equity research
house. Our defining trait is the ability to convert information and data into expert judgements and forecasts with complete objectivity. We leverage our deep understanding
of the macro-economy and our extensive sector coverage to provide unique insights on micro-macro and cross-sectoral linkages. Our talent pool comprises economists,
sector experts, company analysts and information management specialists.
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Last updated: August, 2014
Disclaimer
CRISIL Research, a division of CRISIL Limited (CRISIL) has taken due care and caution in preparing this Report based on the information obtained by CRISIL from
sources which it considers reliable (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for
any errors or omissions or for the results obtained from the use of Data / Report. This Report is not a recommendation to invest / disinvest in any company covered in the
Report. CRISIL especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this Report. CRISIL Research operates
independently of, and does not have access to information obtained by CRISIL’s Ratings Division / CRISIL Risk and Infrastructure Solutions Limited (CRIS), which may, in
their regular operations, obtain information of a confidential nature. The views expressed in this Report are that of CRISIL Research and not of CRISIL’s Ratings Division /
CRIS. No part of this Report may be published / reproduced in any form without CRISIL’s prior written approval.
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Classification: EXTERNAL
