India Ratings & Research has downgraded Indian automobile sector's outlook to stable-to-negative from stable, the first time in six years that the Fitch Group company has revised its outlook for the sector.
"The outlook reflects the structural weakness in the passenger vehicle segment in terms of high capacity additions and intensifying competition which may potentially become entrenched in the industry structure," India Ratings said on Monday.
It further said that it doesn't envisage a revision in auto outlook to positive in the medium term, even if there is modest revival in volumes. However, a higher-than-expected agricultural output and pickup in exports could cushion the possible weakening in the financial profiles of original equipment makers.
The ratings agency expects PV production in India to rise to 65-67 lakh units by FY16, up 33-37 percent over FY13. But this growth amid slowing demand doesn't portend well for such capital intensive sector, it feels.
Automobile sales in India, especially passenger car and medium & heavy commercial vehicles, have slumped for more than a year now on the back of expensive loans and rising fuel prices, coupled with the overall economic slowdown.
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Sales of utility vehicles, which had remained strong, have also started cooling in the last few months, especially after the government raised excise duty by 3 percent and allowed oil marketing companies to increase diesel prices in small proportions each month.
For the current financial year, India Ratings expects PV volumes will decline 5-12 percent, with car volumes slipping 8-15 percent.
"Price conscious buyers opting for UVs in the sub Rs 7 lakh price range (which accounts for significant proportion of segment volumes) appear to be deferring purchases as they are also faced with steadily increasing diesel prices," India Ratings said.
In the CV segment, it expects volumes to to decline 6-12 percent in FY14. While LCV sales have been hurt by reduced domestic consumption pattern, there are few buyers for M&HCVs due to low demand from infrastructure, mining and manufacturing sectors, it added.