The automobile sector was expected to be the biggest beneficiary of the Union Budget FY2009. For one, the budget reduced the excise duty on cars and two wheelers, expected to boost demand. Moreover, the changes proposed in the tax exemption slabs, along with the recommendations of the sixth pay commission, were expected to increase the disposable income in the hands of individuals, said Sharekhan, one of the leading broking houses in India.
Unfortunately, the macro environment has changed since the announcement of the budget. For instance, raw material prices have surged and inflation has hit a three-year high at nearly 7%. These factors are expected to act as dampeners for the automobile sector, the broking house said.
The liquidity constraint is also expected to continue due to the rising inflation and RBI`s response to control it. Profitability of automobile makers is expected to be hurt by the rising raw material cost, lack of traction in volumes and volatility in foreign exchange (forex) rates. The slowdown continued in Q4FY2008 with the passenger car segment, which was previously growing at double digits, the broking house said.
The passenger car sales, which grew by 13% over the April-December 2007 period, rose by only 6% in the fourth quarter. The slowdown in the commercial vehicle (CV) segment continued with a growth of 1.2% in Q4FY2008 as compared with a 3.6% increase in the April-December 2007 period. Sales of two-wheelers continued to decline due to a drop in the sales of motorcycles. The two-wheeler sales saw a drop of 12.5% in Q4FY2008 as compared with a decline of 7.7% in the April-December 2007.
Among the heavyweights, Maruti Suzuki`s sales volume for the quarter grew by only 1.1% due to the general slowdown, increased competition and the discontinuation of Esteem from January 2008. Swift Dzire was launched in the end of March 2008. The sales volume of Mahindra and Mahindra (M&M) grew by 5% during the quarter. Tata Motors` sales volume for the quarter rose by 2.1%. Ashok Leyland`s volumes for the quarter grew by 4.5%, whereas those of Bajaj Auto (BAL) declined by 11.7%.