It may be raining car sales if the March’s numbers are anything to go by, but investors are seeing only the dark clouds on the horizon.
The reason: The market is worried that growth in the coming year could come at the cost of profit margins.
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Maruti Suzuki, India’s largest car maker by sales, increased prices of all vehicles between 1,000 rupees and 10,000 rupees.
India is a very price-sensitive market, which prevents Indian auto companies from frequently raising prices even when raw material prices rise. Stiff competition has also made auto makers wary of price hikes. And the scorching sales growth numbers of last year are likely to see some moderation in the current financial year, which started April 1.
Local car sales in March, for instance, rose 24% from a year earlier to 194,199 vehicles, according to data released by the Society of Indian Automobile Manufacturers, an industry lobby group. Sales in the year ended March 31 surged 30% to 1.98 million units–the most in more than a decade.
These numbers, however, failed to bring Indian auto stocks out of their funk.
Tata Motors ended Friday 2.8% lower at 1,254.95 rupees; Maruti Suzuki slipped 2.0% to 1,254.20 rupees; Mahindra & Mahindra was off 0.6% at 727.75 rupees; Bajaj Auto Ltd. closed 1.7% lower at 1,413.85 rupees. The BSE Auto Index fell 1.9%, underperforming the 0.7% drop in the benchmark Sensex.
“The preference of sustaining market share over maintaining margins has created a high-growth, low-margin environment,” Sharekhan said in research note Thursday.
A surge in the cost of raw materials such as steel, aluminum and natural rubber, has, however, forced many auto makers to raise vehicle prices or at least consider doing so. Mahindra & Mahindra Friday said it has raised prices of all vehicles by 1.5% to 2%.
Maruti Suzuki, India’s largest car maker by sales, Tuesday said it has increased prices of all vehicles between 1,000 rupees and 10,000 rupees. Tata Motors also raised the prices of some car models from between 7,000 rupees and 36,000 rupees from April 1.
Others like the India units of Hyundai Motor Co., Honda Motor Co. Ltd. and Toyota Motor Corp. have already raised prices or are in the process of doing so. This is the major round of price increases by auto makers since January.
Ashvin Shetty, automobile analyst at Ambit Capital, says the price hikes are unlikely to be enough to fully offset the pressure on margins from higher raw material costs.
And even if higher vehicle prices don’t dampen the Indian consumers’ new-found fascination for personal mobility, analysts say increased borrowing costs probably will. Indications are that India’s central bank will again hike interest rates to combat high inflation in the economy when it meets next on May 3.
Fuente: India Real Time