Indian Automobile Sector to Grow in FY2017

Indian automobile sector is expected to witness a year-on-year growth of 12 percent. Market experts believe that the sales of medium and heavy commercial vehicles will continue to grow, thanks to the increasing demand and inflow of investments into infrastructural sector. Besides OEMs, auto parts manufacturing companies will also witness a steady growth in the segment.

Factors including operating leverage benefits and low benign commodity prices will benefit OEMs in expanding their margin. In addition to these, factors including GST implementation, central government’s seventh pay commission, and increased hiring across the industry indicates a sign of growth in the CV segment. Besides, implementation of BS-IV emission norms from the year 2017 is forcing operators to place pre-orders for the commercial trucks. On the other hand, experts believe that OEMs could face higher cost of production in Q1 of FY2017, since the commodity cost index is still on higher side by 35 Bps.

As per the MET department, this year's monsoon will be above normal. This could impact the rural economy to a greater extent, but the results can only be seen in the second quarter of FY2017.

Major commercial vehicle players including Tata Motors, Ashok Leyland, Eicher Motors and Mahindra & Mahindra are expected to witness resurgent growth in their domestic volumes. As per industry's predictions, margins for Tata Motors could surge over 100 bps points on quarterly basis to register 15.4 percent growth. Factors including favorable currency, growing Chinese market share, and operating leverage should benefit Tata Motors.

Another Indian CV player, Ashok Leyland could see a margin expansion of 12.6 percent with 250 bps points on quarterly basis. Also, the margin expansion for M&M could be at 11.8 percent with 170 bps points.

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