Share of diesel car sales likely to decline in next 2 years: ICRA

The share is likely to drop to 30-35% from the current 55%

The share of diesel passenger vehicles is likely to drop to 30-35 per cent of annual passenger vehicle sales in the next two years from a current 55 per cent, says a recent report by ICRA.

It highlights that while the while the Rs 1.7 lakh crore Indian passenger vehicle industry is estimated to have grown by 12 per cent and 13 per cent in 2011-12 and 2012-13 respectively, (even while volume growth was much lower at 5.1 per cent and 2.2 per cent respectively), two distinct trends have evolved.

One is that there has been a decisive shift in preference of Indian car buyers for diesel cars over petrol ones, and secondly, the Indian consumers showed a strong proclivity to buy utility vehicles (UVs), mainly compact UVs. The shift towards diesel cars caught up speed post June 2010, when petrol prices were fully deregulated, while diesel prices were not, and the preference towards UVs was led mainly by new model launches.

ICRA feels that ,"Given the stronger volume growth of higher priced diesel models and UVs, it naturally translated into a relatively healthier revenue growth for the industry in 2011-12 and 2012-13, despite sluggishness in unit sales. In the seven months in 2013-14, however, growth in both volume terms as well as value terms has been negative. Domestic PV volumes declined by 4.8 per cent on a year-on-year basis (yoy) in seven months in 2013-14, but the decline in value terms is estimated to have been higher at  around 6 per cent yoy."

"Given the possibility that diesel prices may eventually be fully de-regulated, we expect the share of diesel PVs in annual PV sales to reduce to around 30-35 per cent in the next two years (55 per cent currently). This is on the assumption that India's vehicle taxation policy will remain fuel neutral as also the current rate of excise duty and VAT imposed on petrol and diesel (as fuels) will remain unchanged," the report claims.

Also, hike in diesel prices, increase in excise duty on Sports Utility Vehicles (SUVs, non-taxi segment) and high base of last year caused UV volumes to decline by 3% yoy in seven months 2013-14 compared to the robust volume growth of 52.2% witnessed in 2012-13.

In ICRA’s view, "The Indian PV industry’s domestic volumes may likely decline by 1-3% in 2013-14, as we expect demand weakness to impact not just the small car segment (that accounts for 55-60%  of industry volumes), but also the UV segment that had shown robust growth in 2012-13."