Automobile Sector In Low Gear, Growth Prospects Hit Plateau

The automobile industry is being driven downhill. This is attributed to sluggish growth owing to slow offtake from the user sectors and compounded by a general slowdown in the economy.

The Association of Indian Automobile Manufacturers said that during 1996-97 production of all commercial vehicles increased 16.9 per cent (32.9 per cent), two and three-wheelers by 12.9 per cent (21.7 per cent), cars by 16.5 per cent (34.7 per cent) and multi-utility vehicles by 13.7 per cent (37.1 per cent).

In 1996-97, sales of commercial vehicles increased by 15.5 per cent (29.4 per cent), two and three-wheelers sales rose by 12.2 per cent (21.1 per cent), cars by 19.1 per cent (32.9 per cent) and multi-utility vehicles by 18.2 per cent(29.2 per cent).

During 1996-97, eleven auto majors reported a growth of 24.8 per cent (36.2 per cent) in their sales income. The slowdown gathered momentum in the second half of 1996-97 as the companies could notch up a rise of only 13.4 per cent in sales income - down from 40.2 per cent in the first half. The bottomline rose by a modest 21.6 per cent as compared with 54.6 per cent in 1995-96.

For the auto sector, which has been reporting a robust bottomline in the past, the present results must look a pale shadow of the earlier years. There are differential growth rates of sales income of major segments of the auto sector.

Overall, it seems the HCV/MCV/LCV segment, with a 28.4 per cent growth has outperformed other segments like automobile 2/3 wheelers by 17.4 per cent, automobile cars by 24.9 per cent and automobile tractors by 24.4 per cent.

Here again, the first half has done better than the second half in terms of sales income. A major fall was in the car segment where the growth rate was 88 per cent in the first half but fell to 25 per cent in the second half of 1996-97.

In 1996-97, the net profit margin on cars declined to 2.1 per cent from 6.6 per cent in the previous year. This is because of a slow offtake in volumes. The effective price realisation was not as good as expected.

Considering the slack demand, the industry has reduced its production in the current fiscal. In April 1997, production of all commercial vehicles declined by 6.4 per cent and sales by 25.8 per cent over that in April 1996. A fall in demand for consumer durables also affected demand for and consequently production of LCVs.

In the HCV segment, demand increased for heavy commercial vehicles at the higher end. However, demand may not sustain the growth of commercial vehicles owing to a slowdown in general. Lower freight rates this year also seem to have affected offtake of trucks.

The downtrend seems to be getting deeply entrenched with the passage of time. In April 1997, production of cars declined by 0.8 per cent and car sales by 1.6 per cent.

This is despite availability of finance and higher discounts. In the same year, production of multi-utility vehicles declined by 0.5 per cent and sales by 12.2 per cent over April 1996.

Only Maruti Udyog in the car segment and Mahindra & Mahindra in the multi-utility segment showed an increase in production.

Manufacturers of multi-utility vehicles hope the demand may pick up due to good agriculture and a rise in the income of farmers.

They also feel if the state government allows jeeps (multi-utility vehicles) to operate as taxis their sales may pick up. In either case, the major beneficiary would be Mahindra & Mahindra.

In April 1997, production of two and three-wheelers declined by 7.4 per cent whereas sales fell by 6.3 per cent. In spite of an overall fall in production and sales of two-wheelers, production and sales of motor cycles has risen in April 1997 by 24 per cent and 19 per cent respectively over that in the previous year.

This shows that there is a brisk demand for these vehicles, particularly from youngsters.

Bajaj Auto is planning to set up a third manufacturing plant near Pune for production of new generation two-wheelers with a production capacity of 1 million vehicles per annum.

It may go on stream by the second half of 1998-99. The company has yielded some market to its rivals - LML, Kinetic and Greaves. During 1996-97, Hero Honda has reported good growth in sales income and profit margins.

The company has managed to get a foreign currency loan of Rs 90 crore at an average interest rate of three per cent per annum.

In 1996-97, sales income of Eicher Motors rose by 20.8 per cent to Rs 288.9 crore. Sales income of Escorts rose by 22.7 per cent to Rs 1,600 crore.