The sales of automotive vehicles in India will continue to see a third consecutive year of growth in FY2024 according to an analysis by PrimeInvestor, a smallcase manager.
It says that going forward the auto sector growth is expected to be more even across all the categories, albeit in the mid-single digit. A strong rural recovery could even aid faster growth for small cars, two- and three-wheelers, which could move the overall growth needle to high single digits for these categories.
The lending cycle in the rural economy has also seen a revival with a strong comeback by small finance banks, NBFCs, and micro-finance institutions. The electric vehicle segment with continued support from the government (subsidies) could take the electric two-wheeler segment sale past a million units in FY2024. In the electric passenger vehicle segment, there is still sometime for higher adoption due to “high initial purchase costs”.
The commercial vehicle segment is also expected to continue with a recovery trend aided by higher government spending on infrastructure, pick-up in demand for buses, logistics fleet replacement and vehicle scrappage policy.
While the first quarter of FY2024 could see a weak start due to the new emission norms switch, it is expected to catch up thereafter. To further accelerate growth in this auto sector, the overall economy should grow faster than the 6 percent GDP growth expected in FY2024.
Automobile and ancillary companies can be expected to continue their earnings growth path in the fiscal led mainly by margin recovery. EV players, on the other hand, are in a sweet spot in the market amidst a bitter battle going on with government on subsidies. If this resolves early, they could be headed for another big leap in FY2024.
With FY2023 closing, the sector seems to have registered a good recovery but not across segments. The study says very clearly the passenger vehicles and commercial vehicles are in the driver’s seat while the full recovery is still way for two- and three-wheeler segment.
The SUV segment stole the show and was in the drivers seat in FY2023, with the segment witnessing sales of 14,89,219 in FY2022 to 20,03,718 units in FY2023.
This it says can be attributed to rising demand for premium vehicles and at the same time slowing demand for small cars due to uneven recovery in the economy. The uneven recovery also reflects higher stress faced by the lower income category of society during Covid. This was also evident from the high NPA percentage reported by lenders to two and three-wheeler segment and over 90 percent moratorium availed by small finance bank borrowers during Covid. The credit being the driving force behind auto sales has taken a toll on the two and three-wheeler sales.
Commercial vehicles on the other hand managed a strong finish to FY2022-23, marginally below the peak sales in FY2018-19 aided by logistics, construction, and transportation (buses).
While EV sales growth numbers are very high due to the low base, their adoption rate still remains quite low, leaving much room for further adoption and growth. There are also several incentives offered by Central and State Govts. to attract buyers to EV including exemption from registration charges, tax deduction on interest paid on loans availed to buy the green vehicles among others.
To bring costs further down, state governments have been offering stamp duty exemption on the purchase of land for EV production, reimbursement of SGST for manufacturers, tax exemptions on electric tariff and land subsidy among others. These initiatives will further drive the growth of EV sector in coming years.
