Capacity underutilisation to add auto cos' woes

Report says utilisation is down by as much as 50% due to muted demand for passenger cars

Hit by muted demand, capacity utilisation of the Indian automobile industry has declined, as much as 50 per cent in the passenger vehicles segment that will add to margin pressure of auto companies this year, says a report.
    
According to the report by financial solutions services provider Resurgent India Ltd, the industry which has witnessed impressive growth during FY07-11 period, capacity additions in expectation of robust demand that did not materialise has also further pulled down the utilisation rates.
    
"Despite impressive growth during FY07-11 period, the capacity utilisation since then decreased due to muted demand. These estimates are for overall capacities and therefore are much lower than the utilisation rate in case of diesel passenger capacities where demand was strong in 2012," the report said.

    

While it did not specify by how much the overall capacity underutilisation is, the report said: "In passenger vehicles the capacity utilisation is anticipated to be below 50 per cent...Underutilisation of capacities in 2013 would add to margin pressure."
    
According to the Resurgent India findings, in FY12, total production of passenger vehicles in India was 3.1 million units, up 3.3 per cent from 3 million units in FY11.
    
As per Society of Indian Automobile Manufacturers, production of passenger vehicles in the April-September period this fiscal was down by 2.3 per cent to 15,23,654 units as against 15,59,592 units in the same period last fiscal.

      
In terms of revenue, the Resurgent India report said during the FY07-11 period, the gross turnover of automobile manufacturers in India expanded at a CAGR of 17.7 per cent to touch USD 58.6 billion.
      
On the prospects of a recovery in the market, the report said the current state of the economy and the recently introduced Land Acquisition Bill would deal a double whammy to the expectations of the industry.
      
"While the economy would recover in due course the conditions laid down in the bill would be a definite deterrent for companies to set up greenfield projects. With no or negligible expansion companied would be stuck up with the existing lines and the scope of introducing new models would be restricted," it said.