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Table of Contents
Domestic - Short term demand
Domestic - Long term demand
Exports - Short term demand
Exports - Long term demand
Auto-component production to grow at 12-14% in fiscal 2019 and fiscal 2020 supported by healthy demand from OEMand exports
In fiscal 2019, OEM off-take is expected to grow by 13-15% as :-
Commercial vehicles production is expected to grow by 25% due to a strong government focus on road construction, infrastructure and also due to an increase in private consumption.Production growth has been higher in FY19 as compared to domestic sales due to supply constraints in FY18 post BS IV transition for CVs.
Total production of two-wheeler is expected to increase by 8-10% due to healthy rural sentiments and new model launches. Retail sales are expected to remain under pressure due to an increase in total cost of ownership owing to a sharp increase in fuel prices, higher outgo on account of insurance and uptick in interest rates.
Cars and UVs contribute ~50% of OEM segment revenue and we expect a growth of 6-8% in FY19 due to new small car launches like the Maruti Swift and the Hyundai Santro coupled with a growing demand of UVs. Car sales declined during the festive period during to rising cost of ownership. However, we expect sales to pick up due to improving affordability and government support to aid farm incomes.
Realisations will grow on account of vehicle price hikes and passing on of raw material price increase. Basic raw material index is expected to increase by 10-12% in fiscal 2019.
We expect the organized aftermarket to benefit from the goods and services tax (GST) and replacement demand to remain healthy.
Exports are expected to grow by 15-17% in fiscal 2019 mainly on account of improving global economic conditions and the depreciating rupee. In major export destinations, such as USA, auto sales mainly class 8 trucks have grown by 70% in CY 2017 and are expected to record strong growth in 2018. Another major economy, Europe has also shown signs of revival. Latest data from DGFT reported a strong growth of 22% in H1 fiscal 2019. Auto component exports to other emerging economies such as South East Asia and Latin America have also shown substantial growth and will continue to drive demand in fiscal 19 and fiscal 20.
Imports are estimated to grow at a higher pace of 13-15% in fiscal 19 despite anti dumping duties and localisation efforts by the players as domestic demand is expected to drive growth. Higher imports of components pertaining to safety (due to various mandatory regulations), body parts, etc. continue to contribute to the import growth. In the long term, availability of new technology due to collaboration of the domestic players with foreign players and localisation efforts by the OEMs will keep imports in check.
We expect auto component demand to grow by 13-15% in fiscal 20 on account of strong growth across asset classes. As the BS VI emission norms are expected to come into effect in FY21, this would result in a price increase across all automobile segments and pre-buying of cheaper BS IV vehicles in FY20 is likely to drive volumes up. A strong domestic demand and a pick up in exports is expected to aid overall auto components growth in FY20.