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Outlook for auto sector stable in 2012

By Motortrend India Staff   |   10 January,2012

Ratings agency Fitch on Tuesday assigned a stable outlook for the Indian auto industry in 2012 and said passenger vehicles volumes are expected to grow by 3-5 per cent during the year, with car sales increasing by up to 4 per cent.

It, however, said that commercial vehicles (CVs) segment is likely to register a higher volume growth of 8-10 per cent.

"The 2012 outlook for the Indian auto industry is stable, driven by the expectation that the credit metrics of most companies, though may weaken, will continue to be in line with values expected during a cyclical downturn," Fitch Ratings said in its ‘Outlook 2012: India Auto’ report.

It further said: "Fitch expects passenger vehicles (PVs) to register volume growth of 3-5 per cent in 2012, contributed by growth of 2-4 per cent in cars, 6-8 per cent in utility vehicles and 8-10 per cent in multi purpose vehicles."

According to the report, the sales volumes of cars will be driven by growth in sales of diesel cars attributed to the pent up demand from 2011 which saw sales curtailed due to demand supply mismatches.

It said the auto sector will remain stable even as competition-led pricing pressure amid muted sales will lead to a drop in operating profitability and a consequent weakening of coverage and leverage indicators.

"Fitch believes that a weakening of household finances and higher cost of ownership will continue to curtail the buying power of consumers in 2012, especially buyers of cars in small- to mid-size segments which contribute to the bulk of PV sales.

"Moreover, any reduction in interest rates this year is unlikely to boost auto sales significantly given negative sentiments of buyers with regard to general economic conditions," it said.

Regarding the commercial vehicles (CVs) segment, Ficth said it is likely to register overall volume growth of 8-10 in 2012, driven largely by the sales of light commercial vehicles (LCVs).

"Fitch expects LCVs to continue displaying strong volume growth of 18-20 per cent in 2012. However, medium and heavy CVs are likely to display muted volume growth of at 3-5 per cent, considering that they are deployed to a greater extent for industrial and mining-related transportation activities," the report said.

The agency, however, warned that structural changes in the Indian auto industry in terms of increased number of companies is likely to restrict any significant improvement in margins from current levels, even during future economic upturns.

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