The credit rating agency, India Ratings and Research (Ind-Ra) in its latest report has maintained a stable outlook on the auto sector for the current financial year. This is mainly driven by moderate annual volume growth of 6-9% for passenger vehicle (PV) segment, despite an expected slowdown in the commercial vehicle (CV) segment. The report has said that growth in the PV segment is likely to be driven by utility vehicles (15-20%), the car segment (3-5%), while the van segment is expected to remain tepid at up to 2%. It also said that the slowdown in the CV segment is expected to be on account of a 9-12% decline in medium and heavy commercial vehicles (MHCVs), partially offset by a 6-9% growth in light commercial vehicles (LCVs).
The report further stated that MHCVs volumes would decline in FY18 due to inconsistent Index of Industrial Production (IIP) trend, coupled with the depletion of replacement demand. However, it also noted that LCV volumes are likely to continue to be supported by demand for last mile transportation, arising from a substantial increase in the online retail sales. In addition, it also expects that domestic scooter volume growth to remain close to the 2016-17 level at 15-18% and lower than the previous years due to the base effect.
As per the report, if there is a normal monsoon, motorcycle volumes are likely to recover slightly over April-December 2016 growth level of 6.3% with increased currency in circulation, leading to a demand revival in 4Q of FY17 and 18. Meanwhile, the ratings agency also said that the implementation of the Goods and Services Tax (GST) might benefit the auto industry and companies engaged in manufacturing in terms of significant reduction in logistics and supply chain costs. However, these benefits would be partly offset by the increase in effective tax rate.
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