Sunday, January 24, 2010

Robust rural market fuels car sales

Rising income levels, easy credit and better roads push up numbers.


Manu P. Toms

Mumbai, Jan. 24

Car makers are making greater inroads into rural markets with industry majors reporting 50-100 per cent rise in sales in such regions in the current fiscal.

Market leader Maruti Suzuki's rural sales more than doubled to 1.16 lakh cars in April-December. Others such as Hyundai, GM and Mahindra & Mahindra have also seen higher growth.

For Maruti the share of rural sales this year increased to 16 per cent from 9 per cent last year.

Hyundai, the second major player, noticed that the shares of its tier-2 and tier-3 markets' sales – largely rural and semi-urban – grew to 29 per cent from 23 per cent.

Both manufactures together hold 70 per cent of the Indian car market.

“We did better than the car industry in general, largely because of our rural focus. The contribution of rural India in our overall sales is growing year by year,” said Mr Mayank Pareek, Executive Officer, Maruti Suzuki.

Maruti has loosely classified areas beyond the top-80 cities as rural market and has been carrying out sales promotion activities in tie-up with schools, panchayats and local clubs.

Holding on to its rural focus, the company recently launched the multi purpose vehicle Eeco at an attractive Rs 2.6-3 lakh price range.

“Our sales in the top-10 markets have declined from 53 per cent to 46 per cent. However, in tier-2 and tier-3, we are growing,” said Mr Arvind Saxena, Senior Vice-President, Sales & Marketing, Hyundai Motor India Ltd.

The easy ride of car makers, whose combined sales this fiscal is 25 per cent up at 16 lakh units, has got a strong push from rural India and this bears testimony to the rising income in villages.

“The Indian car makers have identified a ‘prosperous rural customer segment',” said Mr Kapil Arora, Partner, Automotive Practice, Ernst and Young India. “In relation to its size, rural India still remains largely under-penetrated, and clearly demand is growing there. Aspirations are growing along with rising prosperity. The macro-economic factors such as easy credit and improving road connectivity in interiors also contribute to the sales growth,” he said.

“If the top-eight cities used to contribute 60 per cent of the total sales and 40 per cent the rest earlier, it is the other way around now,” said Mr P. Balendran, Vice-President, General Motor India.

Mr Rajesh Jejuricker, Chief of Operations, Mahindra & Mahindra, has a similar view. “We continue to see a robust growth in rural and semi-urban markets. This year our overall sales grew by 35 per cent. The rate of growth is even higher in non-metro markets,” he said.

Commercial vehicles sector sees light at the end of tunnel


Manu P. Toms

Mumbai, Dec. 30

The commercial vehicle industry, which took a battering for much of 2008 and 2009, has reason to believe that the worst is over now.

Sales of buses and trucks, which had hit the bottom of the barrel last year, have now been improving month by month. “The commercial vehicle industry is heading for an overall 10 per cent negative growth in 2009.The current indications suggest a 20 per cent growth in 2010.

However, it is still lower than the 2007 levels,” said Mr Somnath Bhattacharjee, Vice-President, Sales & Marketing, Volvo Eicher.

Commercial Vehicles

Unlike the passenger vehicle sector, which staged a quick turnaround following the Centre's stimulus package, commercial vehicle sales have been trailing from the year-ago period till August this year. “This industry is the first to be hit in a downturn and the last to recover,” quipped Mr Dilip Chenoy, Director-General, Society of Indian Automobile Manufacturers.

Incidentally, LCV (light commercial vehicle) sales are back on track with a 20 per cent growth while medium and heavy CVs, which were the worst hit, are still not out of the woods yet.

“Although the cut in excise duty, reduction in interest and greater liquidity brought down the acquisition cost, stricter appraisal norms for getting truck loans hit vehicle financing. Truck operators, particularly, first time buyers found it difficult to get finance,” said Mr Bhattacharjee.

According to him, the lower increase in freight rates (around five per cent instead of 10 per cent in a normal year) hit the bottom line of fleet operators who did not buy as many trucks as they would have normally.

In addition, the slowdown in construction and mining and delays in awarding mining licences and construction projects affected sales of tippers and dumpers, says an Ernst & Young report on commercial vehicles.

The year also saw manufacturers either keeping projects on hold or walking out of joint ventures. For instance, the Hero group parted ways with Daimler in their proposed commercial vehicle alliance.

Likewise, the LCV joint venture between Ashok Leyland and Nissan is now in the stage of “optimising investments and using available facilities (read as the Leyland plant in Hosur and the Nissan unit near Chennai) in the first phase”.

The positive news in the year included Tata Motors launching its World Truck series while VE and Mahindra Navistar will follow suit with their new range next year. The Centre-sponsored JNNURM (Jawaharlal Nehru National Urban Renewal Mission) subsidised bus purchases by municipal corporations which led to over 10,000 vehicles being procured by civic bodies.

It now looks as if 2010 augurs well for the industry. “The general sense of optimism is increasing with each passing month.

The increase in foreign capital inflows is positive for the economy which is showing signs of revving up again. And this is great news for the commercial vehicle industry which is dependent on economic activity,” said Mr Rakesh Batra, Automotive Sector Leader, Ernst & Young, India.

Car-makers accelerate on Govt gas


Manu P. Toms

Mumbai, Dec. 24

Record sales, 30 new launches and companies reporting historically high quarterly profits – the passenger car industry could not have asked for more.

“A year that I don't think anyone would have expected,” says Dr Pawan Goenka, President, Auto Sector, Mahindra & Mahindra, who is the President of the industry body, Society of Indian Automobile Manufacturers (SIAM).

In fact, 2009 was a tumultuous year for the global auto industry, which witnessed the world's largest car maker General Motors filing for bankruptcy, Toyota posting a net loss for the first time in 70 years ,and car sales falling in most of the mature markets. And, yet, the Indian car market showed a 20 per cent growth.

The high double-digit growth comes immediately on the heels of a year ridden with inflation, credit squeeze and the global slowdown – factors that threatened to put a spoke in domestic car sales.

Industry officials attribute the domestic growth to the Union Government's stimulus package comprising an excise duty cut and Cenvat reduction, besides a slew of other measures to ease the credit situation.

“The first three months of the 2009 calendar year were months of apprehension. In April, May, June we saw very decent growth. In October, November it bumped up. Overall, if we look at it in terms of profit growth and volume growth, it has been a very good year. A year that I don't think anyone would have expected,” says Dr Goenka. According to him, the combined effect of the stimulus package, low interest rate and low commodity prices saw customers coming back to the showrooms.

According to Mr Rakesh Batra, Partner and National Leader, Auto Practice, Ernst & Young, the Indian passenger vehicle volumes will cross two million units in the current financial year.


Tata Nano - The People's Car

The year 2009 is marked by not just the robust sales posted by individual companies but also by the product innovation skills exhibited by the Indian manufacturers.

It also saw the much-awaited commercial launch of the world's least expensive car, Tata Nano. Around 15,000 Nanos are out on the street ever since Tata Motors began the delivery of the car in July. While the company is busy ramping up the capacity at the makeshift Nano plant in Pantnagar and readying up its Sanand plant for small car, close to 1.5 lakh customers are waiting for their turn to drive away the ‘People's Car'. This year, Tatas took another important step by starting the retail of its British luxury models Jaguar and Land Rover in India.

Keeping in line with the Centre's Automotive Mission Plan to make India the global small car hub, car exports topped three lakhs during the calendar year. Riding on the scrappage incentive scheme in Europe, where fuel efficient small cars caught the fancy of customers, Hyundai Motor India and Maruti Suzuki enjoyed better overseas sales.

“India's significance at the global level is increasing. India surpassed China in the number of cars exported,” said Mr Batra.

“Various players, including Toyota, Ford and Hyundai, have announced their plans to make India a manufacturing hub for small cars. The GM-Reva tie-up shows that India's contribution at the global level goes beyond the low-cost-manufacturing,” he said.

Small car revolution

The small car revolution in India continues with companies breaking their own sales records month by month. In November, Maruti and Hyundai recorded their highest ever monthly sales at 88,000 and 55,000 units respectively.

Another significance of the year is the car industry's increasing penetration into the rural markets. Maruti, which consistently enjoyed good sales through out the year, sees increasing rural sales as one of the key factors. “Our strategies worked really well. We are present in all segments of the small car market and we had three launches in last 12 months. Alto at 2.6 lakh units continues to be largest selling model in India,” said Mr Mayank Pareek, Executive Officer, Maruti Suzuki.

Going forward, the increasing raw material price, likely fiscal measures to control inflation that will lead to an interest rate hike which in turn will affect EMIs (equated monthly instalments) and the cost escalation that comes with new emission norms – all suggest the going might not be as smooth as it used to be. However, according to Dr Goenka, auto companies that made good profits during the year are able enough to absorb some of the pressures. “I see no dark clouds as there is no slackening of demand,” he says.

According to rating agency CARE (Credit Analysis & Research Ltd), among households that can afford a car, the penetration is as low as 45 per cent. With many more entering into the bracket of households that can afford a car, the demand scenario looks strong for the next few years. The last thing car-makers want now is a reversal of stimulus measures as everybody wants the momentum to continue

Skoda plans clean drive with LPG, Greenline engines

Manu P. Toms

Mumbai, Jan. 21

Czech carmaker Skoda will launch LPG (liquefied petroleum gas) variants of its cars retailed in India. It is also planning to introduce its ‘Greenline engines' known for their low emissions and high fuel efficiency.

The first LPG option will be made available in the Laura. Mr Thomas Kuehl, Board Member, Skoda India, told Business Line that this would be a factory-fitted LPG engine, which will also offer petrol as an option. However, he did not indicate when this variant would debut in the market.

The company will, likewise, be open to an LPG option for the Fabia hatchback though Mr Kuehl said it was “too early to say” when this would happen.

As a result, Skoda is likely to create the infrastructure needed for manufacturing LPG cars at its Aurangabad plant. It will also join a growing list of carmakers which offer LPG options in their product offerings right from Maruti Suzuki (Wagon R and 800) and Hyundai (Santro and Accent) to General Motors India (Spark) and Tata Motors with the Indica Xeta.

Skoda is upbeat about its Greenline engines, especially with cleaner fuel norms scheduled to be implemented nationwide from April 1. These engines emit less carbon dioxide than conventional ones and have been doing well in Europe. Now, with Bharat Stage 3 and 4 petrol and diesel to be retailed in the coming months, Skoda believes the timing is right.

“We have Greenline engines which can be introduced in all our models. We are thinking about bringing them to India but nothing is finalised,” said Mr Kuehl. The likelihood of erratic BS 3 fuel supplies for some months could have also prompted Skoda to take one thing at a time.

The carmaker, which launched its second boutique showroom in the country in Mumbai, plans to increase its dealerships to 75 (from 65) by the end of this calendar

Nissan to export India-made small car from August


Manu P. Toms

Mumbai, Jan. 20

Japanese automaker Nissan will begin exporting its small car, Micra, from its Chennai plant to Europe within two months of its launch in India. The production line of the car is being transferred from the UK as part of Nissan's business plan for the Indian market.

“Following the India launch in June, we will start exporting the Micra by August,” Mr Kiminobu Tokuyama, Managing Director and CEO, Nissan Motor India, told Business Line on the sidelines of the launch of its luxury sports car, 370Z.

“The Micra will have a dominant share in our targeted exports of 110,000 units for 2011,” he added. Given that Nissan sells close to one lakh units of Micra annually across Europe, it will account for over 90 per cent of its exports from India in the immediate future.

Mr Tokuyama said that Nissan had also wrapped up production trials of the car in the Chennai plant. The company is taking the cue from Hyundai and Suzuki, which have made India the export hub for their European offerings including the i10, i20 and A-Star.

Suzuki is contract-manufacturing the A-Star (under the brand name Pixo) for Nissan and meant for Europe. Nissan's joint venture with Ashok Leyland will, incidentally, focus on sub-four tonne light commercial vehicles. The company's newly launched 370z, with two variants – the six-speed Synchro Rev Match and seven-speed manual shift mode – priced at Rs 53.5 lakh and Rs 54.5 lakh (ex-showroom Delhi) is part of its plan to import four cars here by 2012 and showcase the Nissan brand.

Nissan plans to sell two to four units of the 370z every month.

It will also increase the number of dealerships from eight to 30 by the end of this year, going up to 55 by 2012.

Future growth for Bharat Forge will be India-led: Baba Kalyani


Manu P. Toms

Mumbai, Jan. 9

By expanding into the non-automotive space, Bharat Forge — one of the world's largest forging companies — expects to bounce back to its earlier levels of profitability. With its large exposure to overseas markets, the forging company saw business going slow in the last few quarters. It declined 37 per cent to Rs 434 crore for the second quarter of the current fiscal.

However, with the robust domestic growth, product diversification and revival in overseas markets, the company hopes to do well. “In the next two-three quarters it (business) will come back to normal,” said Mr Baba Kalyani, Chairman and Managing Director, Bharat Forge, in a recent interaction. Excerpts:

Now you are aggressively targeting business from the non-automotive space. What is the strategy behind this move?

We have set a target of 40 per cent of our sales from the non-automotive space by 2012, and we are pretty much on target. The ratio currently is 21:79 and is moving towards 30 per cent.

Being the largest auto component exporter, how did the downturn in the global market affect your business?

Quite badly, our export numbers have come down. Last year, degrowth started in October 2008. At that time it went down to 20 per cent. Then it started slowly picking up. We are probably now running at 60 per cent (of 2007 levels). We are gaining momentum in this not because markets are coming back but because we are getting customers. We are hopeful that in another two-three quarters it will come back to normal.

How are your overseas plants doing as those markets are still not out of the woods?

We have restructured our overseas plants to what demand we see. They are running at a lower capacity but they will run profitably. We have taken a lot of restructuring costs this (financial) year.

How did you readjust yourself to the downturn?

The good thing is the Indian market is doing exceedingly well. Fundamentally, it is not that it is a recession and that after three years it is going to be back to be normal. What is really happening in the industry is it is resetting itself. The whole industry is going to get reset.

The US was producing 16.5 million vehicles in 2007. It came down to 10 million in 2009. Nobody is betting that it will get back to 16 million in three years. It may be 12 million. So the whole supply industry has to readjust to that. That is the reality in the US and Europe. But in India and China and emerging markets we are growing at a faster rate than we thought.

What is the contribution of exports to your overall revenue?

On an average our export (ratio) is 40:60. When export is at its peak 60 per cent of the sales will be exports and in times like this it will be 40. Going forward, it will be more India-led growth because non-automotive side – power plants and nuclear business – will be Indian.

What is the outlook for the overseas markets?

North America is reviving slow but steady. At least it is no longer going in the south direction.

In Europe, we see a revival but it is largely because inventory has gone out of the system in 2009.

In 2009, the downturn in Europe was extremely bad not because the demand went down that much but because the stocks were high.

Now there are no stocks in the system and we see real demand. Although it is lower than what was before it is higher than 2009 levels. But, I think in Europe, the pain is not over yet. It will be another two-three years before it will get back to recovery.

Bharat Forge to invest Rs 1,500 cr in non-auto biz


Looking ahead

The investments will be made in the next three years

Foray in non-auto biz complete with launch of ring rolling facility

Power equipment manufacturing plant set up with Alstom at Mundra



Manu P. Toms

Baramati, Jan. 4

Bharat Forge Ltd plans to invest Rs 1,500 crore to expand its non-automotive business.

Mr Baba N. Kalyani, Chairman and Managing Director of Bharat Forge, said the investments will be made over the next three years. He said that the fund will be raised partly through internal accruals and the balance through debt and equity.

He was speaking on the sidelines of the inauguration of the company's Ring Rolling facility at Baramati in Maharashtra, on Monday. The new plant will make rings for sectors such as wind energy, defence and oil and gas.

For Bharat Forge, which had a turnover of Rs 4,850 crore in last fiscal, about 80 per cent of the revenue comes from its supply of equipment to automotive manufacturers and engine makers while the rest comes from non-automotive sectors.

Going forward, the company aims to increase the revenue share from its non-automotive business to 40 per cent.

Mr Kalyani said that first phase of the company's foray into non-automotive business is complete with the commissioning of the Ring Rolling facility at Baramati. Bharat Forge has invested Rs 500 crore in the first phase which includes the setting up of an open die press in Pune and a crankshaft and ring rolling facility in Baramati. The crankshafts and rings are manufactured for locomotives, power plants and construction equipment.

“The first phase was to make parts up to 40-50 tonnes. The second phase is to take this to up to 500 tonnes,” he said.

“This new facility will act as a catalyst to further accelerate Bharat Forge's revenue growth and de-risking its business model besides diversifying its non auto business. We have received strong customer response for domestic and international applications,” said Mr Kalyani.

Bharat Forge is now setting up a power equipment manufacturing plant jointly with French company Alstom at Mundra in Gujarat.

“We have just started construction of our plant in Gujarat to manufacture turbines and generators up to 800 MW capacity,” said Mr Kalyani.

The Mundra facility targets business from the nuclear power sector as the country is gearing up to set up many more nuclear power plants.