Consumer sentiment weakens on rising interest costs
ICRA Rating has come out with its report on Indian passenger vehicle sector. According to the rating agency rising interest rates and fuel prices, cumulatively impacting consumer sentiment.
August 11, 2011 / 16:44 IST
ICRA Rating has come out with its report on Indian passenger vehicle sector. According to the rating agency rising interest rates and fuel prices, cumulatively impacting consumer sentiment.
Since the beginning of the current fiscal, the industry has witnessed slowdown in demand partly contributed by rising interest rates and fuel prices, cumulatively impacting consumer sentiment. During Q1 FY12, the domestic market has grown by only 8.7% on YoY basis. Within segments, small cars, which accounts for almost 80% of total volumes has been impacted the most, witnessing a marginal growth of 4.3% during the quarter. While trends vary across segments, the premium & luxury end segment of both passenger cars and Utility Vehicles (UVs) continues to remain somewhat insulated by macro-economic headwinds, registering a healthy growth.Our channel check suggests that since April 2011 footfalls at dealerships have reduced and so have the conversion ratios (from enquiries to actual purchase). Much of the slowdown is on account of weakening consumer sentiment amid rising interest rates and increase in fuel prices. Consumers have also deferred purchases in anticipation of host of new launches expected in the H2 of current year. As a broader trend, inventory levels have increased at dealerships from 20-30 days (on steady state basis) to as high as 50-60 days (for some models). With increasing petrol prices, demand for diesel-backed cars has risen with hot-selling models having long waiting periods. The benefits of diesel vehicles however could reduce in the event of any increase in excise duty specific for diesel vehicles and/or implementation of dual pricing of diesel (personal and commercial use). We believe the growth momentum to pick up from the start of festive season, which will also be coupled with launch of certain new models across segments.Overall, we expect the growth momentum to slowdown during the current year and expect industry to grow by 7-8% in FY12. Export volumes are also likely to remain subdued considering the weak demand from European region. We maintain our long-term five year CAGR growth rate at ~11%. The Indian passenger vehicle industry has been on a strong growth phase over the past decade riding on back of strong economic growth, rising disposable income levels, favourable demographics and adequate financing availability. The strong pace of new vehicle offerings by new OEMs and relatively low penetration levels have also contributed to the growth momentum. Over the past years (i.e. 2007-11), the industry has grown at CAGR (%) of 16.3% with growth being particularly strong in the past two years.Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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