Research company India Ratings and Research (Ind-Ra) expects the automobile export volume growth momentum to continue in FY19, although at a slower pace than in FY18. Automobile exports from India revived in FY18, after showing subdued growth for two years.
A special report on the automotive exports for the financial year 2018 by India Ratings and Research (Ind-Ra) shows that the export volumes for automobiles saw a recovery from a two-year slump in FY18. Prior to the recovery, weak economies and currencies in African and Latin America (LATAM) countries, who are the main export markets for Indian OEMs, led to the export volume decline.
The report makes a prediction based on the current situation where the export volumes can be revived in FY19, but the recovery will be much slower than it was in FY18. Automobile exports from India revived in FY18, after showing subdued growth for two years due to. With the stabilisation of commodity prices, these regions have witnessed economic stability, inducing demand for two-wheelers (2W) in particular. Ind-Ra expects high single-digit growth in overall exports volume in FY19.
PV Exports to Recover
FY19 could see a recovery in PV exports, which declined in FY18 after growing consistently since FY12 driven by utility vehicles (UV). Original equipment manufacturers (OEMs) were focused towards meeting increasing domestic demand for UVs in FY18 and faced delays in GST refunds, which has however streamlined now. PV exports from India would be aided by the export focus of certain multinational OEMs such as Nissan-Renault alliance, Ford India Private Ltd, FCA India Automobiles Pvt Ltd and General Motors India Pvt Ltd.
However, high capacity utilisation at Maruti Suzuki India Ltd (Maruti) and Hyundai Motor India Ltd (Hyundai) is likely to constrain the capacities available for PV exports with these manufacturers. The Indian UV OEMs are likely to focus their energies this year on new model launches, given the intense competition for gaining market share in this segment. Over 2020-2021, the upcoming facilities of new entrants, such as Kia Motors Corporation, Korea and SAIC Motor Corporation Limited, China, would add to exports from India. Additionally, the demand for Indian-made vehicles could be fuelled globally with Bharat Stage VI (BS-VI) compliant vehicles being made mandatory from April 2020.
2W outshine all others
Exports of vehicles from India recovered in FY18, post a decline in FY17 and slow growth in FY16. Export volumes of all vehicles combined grew 16.1 per cent YoY in FY18, compared to a 4.5 per cent YoY fall in FY17. The growth was largely driven by 2W and three-wheeler (3W) sales (largest contributor to export volumes) which grew impressively at 33.6 per cent YoY in FY18, driven by stabilisation of developing countries in Africa and LATAM. However, PV exports volume declined 1.7 per cent YoY during the same period, as passenger cars volumes declined and UV volumes slowed, after rising significantly in the past five years.
2W, 3W and PVs’ overall export contribution to the total vehicle sales (domestic and export) however is low at around 14 per cent and shall remain so in the near term based on the expectation of healthy growth in domestic volumes.
In FY18, 2W exports growth was largely driven by motorcycles (up 22.6 per cent YoY; FY17: down 8.4 per cent YoY). Softening of commodity prices led to lower economic growth and reduced availability of foreign exchange in Africa in FY17, which is one of the major destinations of 2W and 3W exports from India.
Strengthening of oil and other commodity prices in FY18 promoted higher economic growth and exchange stability in the African countries, leading to a revival in motorcycle exports. Export volumes of scooter/scooterettee, whose share in exports has been rising since FY15, also grew 7.1 per cent YoY in FY18.
2W exports volume growth was seen largely in the mid segment of 110 to 125cc, which grew 50 per cent YoY in FY18 and its share in overall exports volume increased to 15 per cent from 12 per cent in FY17. The mid-range motorcycles command the highest demand from emerging countries, although rising demand for premium motorcycle was also seen in FY18.
2W manufacturers such as HMSI, Bajaj and TVS have increased their focus on exports. Despite a 1.3 per cent YoY decline in domestic volumes in FY18, Bajaj remained the largest exporter of 2W with its exports volume growing 14.5 per cent YoY. Bajaj exports as much as 41 per cent of its 2W production. Strong sales in countries such as Nigeria, Colombia and Philippines have resulted in positive growth in Bajaj’s exports. While Africa forms close to 40 per cent of its exports, Bajaj is also focusing on expanding exports to ASEAN countries (around 20 per cent of exports). TVS is also expanding market shares in Asian and LATAM markets.
HMSI, on the other hand, is unlikely to report significant growth in exports in FY19, since it is operating at above 95 per cent capacity and has no major capacity addition plans until 2020, given its shift in focus towards BSVI compliance. It recently expanded capacities at its plant in Narsapura, Karnataka, making it HMSI’s largest 2W plant worldwide, and plans to make it an export hub. Over the medium to long term, if HMSI’s plans to make India an export hub go through, India could see significant capacity additions and export growth in the 2W segment. TVS and Bajaj have sufficient 2W capacities in place to promote exports growth in FY19. TVS expanded its capacities to 45 million units in FY18 and produced 35 million units, whereas Bajaj produced 34 million units with an installed capacity of 54 million. Hero is focused on domestic markets with above 80 per cent capacity utilisation in FY18. It is setting up a greenfield 1.8 million units manufacturing facility in Chittoor, Andhra Pradesh, which is likely to be operational by December 2019 and will take its 2W capacity to 11 million units. Once the new capacity is operational, Hero would be able to increase its export market share from the low levels currently.
Expanding 2W exports to Africa and LATAM were subdued in FY16-FY17. Companies in lieu of this, diverted exports to Asia and thus posted double-digit growth. With the stabilisation of commodity prices, Africa and LATAM economies are reviving and the disposable incomes are rising. Ind-Ra thus expects a revival in 2W demand from these countries in FY19, supported by rising oil prices, economic growth, moderating inflation and an expected fall in interest rates.
Furthermore, Bajaj and TVS both are focussed towards expanding exports to Asia and LATAM
3W Exports Yet to Recover Fully
3W exports grew 40 per cent YoY in FY18, mainly due to the low base of FY17, when the exports had declined by 33 per cent due to factors similar to those for 2W. A recovery was seen largely in 2HFY18. Ind-Ra believes that exports will rise further in FY19, although at a slower pace than in FY18.
A higher demand for the last mile connectivity in emerging markets of Africa and Southeast Asia, due to developing infrastructure and an expected rise in demand for public transport, is likely to fuel 3W exports growth. India exports as much as 38 per cent of 3W production, mainly to Africa and Asia, to meet their last mile connectivity requirements.
Exports of vehicles from India recovered in FY18. The growth was largely driven by 2W and 3W sales fueled by economic stabilisation of countries in Africa and LATAM.
Article Courtesy: India Research and Ratings (Ind-Ra) (Fitch Ratings)
For more information contact Shruti Saboo
Email: shruti.saboo@indiaratings.co.in