Rural uptick, festive season aided auto growth in 2017

Analysts expect growth in 2018 to be 10-12% across segments

After starting the year on a muted note, given the impact of demonetisation and implementation of the goods and services tax (GST), growth picked up across key segments in the automobile sector in 2017.

While the two-wheeler space registered a growth of seven per cent, that of commercial vehicle (CV) and passenger vehicle sales were up nine per cent each last year.

Within the CV space, medium and heavy commercial vehicles (MHCV) grew at a modest six per cent year-onyear due to lower replacement and weak freight demand in the first three quarters of 2017 on account of the note ban and the GST.

The implementation of the overloading ban and a pick-up in demand from infrastructure and cement segments helped growth. Light commercial vehicles, however, did much better on the back of a 17 per cent jump in volumes, led by the consumption-driven sectors (intracity), improved financing and replacement demand.

The underperformer in the CV space has been the bus segment, with sales falling over 13 per cent due to weak demand from state transport undertakings. Binaifer F Jehani, director, CRISIL Research, said the sector would grow 9-11 per cent in 2018. Though higher mining activity and infrastructure development will help MHCV sales growth at seven per cent, what will offset some of the volume growth is the shift to higher tonnage vehicles and lower replacement demand. Passenger vehicle sales were led by strong traction in the utility vehicle segment sales, which at over 17 per cent grew at thrice the rate of passenger vehicles.

A shifting consumer preference for compact utility vehicles has boosted the sales. By far, Maruti has been the best performer on volume front in the passenger vehicle space, with growth of 15 per cent on strong sales of the Baleno, the new Dzire, the Brezza and the SCross. Mahindra & Mahindra (M&M) continued to disappoint in the utility vehicle space, with lower single-digit growth. An uptick in the segment will depend on the success of new models and strong demand from the rural segment. Analysts expect the passenger vehicle segment to grow at 8-10 per cent, driven by rural demand (normal monsoon) and product launches.

Two-wheeler sales for the year were up largely on the back of a 12 per cent growth in scooters. Strong festival period sales, rising affordability, improving rural infrastructure and preference for scooters in rural areas helped the sub-segment outperform the sector growth. The motorcycle segment grew at five per cent, largely on account of strong rural sales. Hero MotoCorp had crossed the seven-million mark in two wheeler sales in 2017, registering a 7.5 per cent growth.

Analysts expect growth to be maintained in the current year on expectations of higher government spending, rural sops and improving affordability. Most brokerages prefer Maruti Suzuki and M&M, given a strong product portfolio in cars and tractors and strong rural presence. Among other stocks, they prefer Bajaj Auto, given rising sales of exports, three-wheeler sales on new permits and gradual growth in domestic two-wheelers.