EXPECTED BUDGET IMPACT: Neutral
LONG TERM OUTLOOK: Positive
Indian automobile sector is going through a tough time, with demand impacted by weak macro-economic situation and high interest rates. Overall volume growth in FY13 is expected to be one of the lowest in the past several years.
Volumes over FY09-FY11 grew at 25% CAGR and slowed down to 13% in FY12. In FY13 volume growth further decelerated with FY13 YTD growth rate at 5%. Amongst segments, passenger cars and the M&HCV segments have been the worst hit. Industry body "SIAM" has already lowered its FY13 growth forecast for the passenger car segment thrice from a high of 10-12% and now expects it to de-grow. Deterioration in consumer sentiment and weak demand for petrol cars has led to 2% FY13 YTD decline in passenger car volumes. M&HCV volumes (YTD) are down by 21% due to high interest rates and slowdown in the economy.
Given the current slowdown for automobiles, the industry is pinning hopes from the upcoming budget for growth impetus in the form of excise rate reduction and certain schemes to boost volumes. We expect no change in the general excise duty rate and accordingly we do not see any change in excise rate for segments falling under the general excise duty bracket. Increased difference between petrol and diesel prices has fuelled talks of additional excise on diesel run passenger vehicles (cars, SUV's). We however do not expect any step in this regard because the government has recently allowed regular increase in diesel prices over a period of time.
While the industry is looking for slew of positive measures for the auto sector, we do see any major positive for the sector as the Finance Minister will be constrained by limited resources. Though, some schemes or indirect benefit could flow in for the sector. However, having said that, we expect the budget to largely remain neutral for the automobile sector.