"Considering the higher income levels and the stiff competition in the car market on pricing, 60-70 million households in India will be upgraded to a car-affordable financial level by 2014-15, taking the number of households at this level to 117 million," Crisil Research Director (Operations) Nagarajan Narasimhan told reporters.
According to a Crisil Research report, the auto market will grow at the rate of 17-19 per cent till 2014-15 to reach a size of Rs 4,20,000 crore, he said.
However, this would translate into just 17 car-owners per thousand people, which means that the potential of the market will remain high, given that the average number of vehicle-owners per thousand people in the European Union and the US was 604 and 440, respectively, in 2009, he said.
In the medium-term (next two years), the industry will see an investment of almost Rs 35,000-40,000 crore by manufacturers and another Rs 20,000-25,000 crore by auto component players, the report said.
Capacity constraints and new entrants (models) will drive the investment of manufacturers, while component-makers will have to invest to meet the demand-supply gap for specific auto components, Narasimhan said.
The main auto players have to strive to maintain their market share as competition intensifies, which will result in higher costs and increasing pressure on margins, the report said.
The competition intensity will impact players' profitability, given the decline in average sales per model by 3 per cent annually, Narasimhan said, adding that the players will focus on expanding their product portfolio and technology-based differentiation to maintain market position.
Rising raw material costs have reduced the margins of auto and component makers in recent years, Crisil Research Director Mukesh Agarwal said.
As players depend on global parents for technology and model variations, royalties are also likely to rise and there will be pressure on players to launch more models, he said.
Technology will be a key differentiator among the auto component players, as players in technologically-advanced segments tend to have a stronger credit profile, higher bargaining power and higher dependence by OEMs (Original Equipment Manufacturers), Agarwal said.
According to the report, the margins of automobile manufacturers will decline by 150-300 basis points (bps) in 2010-11, while that of component players will drop by 100-200 bps. The raw material index is likely to increase by 15-16 per cent in the fiscal, it said.
Source: Agencies
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