The Indian auto industry is likely to see a growth of 10-12 per cent in sales in 2010, but companies will come under margin pressures as competition hots up in the market, according to global rating firm Fitch.
With a slew of new players entering the Indian small car market, segment leaders like Maruti Suzuki India (MSI) and Hyundai Motor India (HMIL) will face challenge to their domination, it added.
"Fitch Ratings expects the overall Indian auto sector to witness an overall growth in sales of 10-12 per cent during 2010," Fitch said in its report 'Indian Auto Sector Outlook'.
The report also said that increasing penetration of global original equipment manufacturers (OEM) is likely to increase the competition in the country's auto sector.
"Many international OEMs are coming in either independently or in collaboration with existing players with the objective of reducing time to market and to take advantage of an established distribution network," it said.
Fitch added the Indian auto sector is likely to witness significant competition by 2012 when most of the new capacity comes on stream but this is likely to result in under-utilisation of capacity in the medium term, on account of the demand/supply mismatch.
"The number of new players, as well as the higher number of new product launches from existing players, is likely to increase competitive intensity over the medium term ... This could lead to increased price competition and consequently margin pressures," the report added.
The report said that recovery in the passenger vehicle segment will be faster and 2010 is likely to see 12-14 per cent growth in sales in the segment, against 5-6 per cent in the commercial vehicle (CV) segment.
The Fitch report, however, cautioned that increase in volume sales may force the OEMs to increase their capex plans impacting credit profiles of higher volumes and lower inventories.
Meanwhile, growing focus on the small car segment by a slew of players is also likely to challenge the domination of current market leaders like MSI, HMIL and Tata Motors. Already, the last few months have seen a slew of small car launches by many auto players.
While domestic sales in the sector will grow, the report does not exude the same level of confidence for the export segment. The scrappage incentives from European countries, which boosted exports from Asia have mostly been taken back.
After being in negative trajectory for months due to the global economic slowdown, the Indian passenger vehicle segment bounced back since June last year. The commercial vehicle segment sales turned northward from October of the same year.
According the Society of Indian Automobile Manufacturers (SIAM), total domestic automobile sales in 2009 grew by 16.93 per cent to 1,13,20,918 units compared to 96,82,113 units in 2008.