BackFuel price hike a near-term dampener for auto firms
The fuel price hike, the second in a month, can dampen consumer sentiment towards new purchases of cars and two-wheelers
Premium(Hemant Mishra/Mint)
Even as analysts grappled with the implications of the Union budget, the auto sector was rather shaken by a steep hike of ₹ 3.18 per litre of petrol and ₹ 3.09 per litre of diesel on account of rising international crude rates.
According to the Indian Foundation of Transport Research and Training, truck rentals may rise by as much as 4.5-6% on various trunk routes in a few days, following the diesel price hike. “March being a busy month for transport of goods, it may be convenient for transporters to pass on the hike in operating cost to consumers," it said in its media note. In January, truck rentals had fallen on account of reduction in fuel prices earlier.
The fuel price hike (the second in a month) can also dampen consumer sentiment towards new purchases of cars and two-wheelers. Note that it comes soon after auto firms had increased vehicle prices just a month ago.
Moreover, the budget had no big-bang measures to drive auto sales and help manufacturers. In fact, the industry’s request to lower duties on special utility vehicles (SUVs) and incentivize replacement of old vehicles (beyond 15 years) went answered.
Meanwhile, the increase of excise duty from 12.36% to 12.5% in the budget may increase prices of some vehicles, albeit marginally, if auto makers pass it on to the consumer. Yet, if all these small hikes are bunched up together, it translates into a rise in ownership costs of vehicles. Any cut in retail lending rates for vehicle purchase may, if at all, offset this.
In any case, the fiscal 2015 sales growth forecast for the industry is in the low double-digits. Sales grew by a modest 9% in the first nine months of fiscal 2015, with discounts continuing to be offered in the passenger vehicles space.
On a low base of sales in the last few years, medium and heavy commercial vehicles have been the best performers. In fact, the host of budgetary sops given to infrastructure development, like roads, railways, ports, cities, etc., are expected to gradually improve demand for trucks, mining equipment and tractor trailers.
Perhaps that is why shares of the country’s two major truck makers, Tata Motors Ltd and Ashok Leyland Ltd, jumped the most after the budget was announced. Import duty increase from 10% to 40% on imported trucks was also viewed positively by the Street, although the impact is minimal as vehicles are hardly imported.
A host of measures to boost rural credit, improve farm income and rural employment are expected to improve tractor and auto sales, too, auguring well for companies like Escorts Ltd, Mahindra and Mahindra Ltd and Maruti Suzuki India Ltd.
But be that as it may, the fuel price increase could keep the sentiment in the sector low in the near term.
The writer doesn’t own shares in the above-mentioned companies.
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