Domestic passenger vehicle sales to grow by 9-10% in FY18: ICRA

New Delhi, Aug 9 (IANS) Domestic passenger vehicles (PV) sales will grow by a healthy compounded annual growth rate of 9-10 per cent during 2017-18 and between 9-11 per cent over the next five fiscals, a study said here on Wednesday.

According to an ICRA study, the outlay for Seventh Pay Commission and the relative high levels of financing penetration in this industry, compared to other sub-groups like two-wheelers, supported the demand momentum despite demonetisation-related impact in the third quarter of 2016-17.

"PV sales could have registered healthy growth in Q1FY18 as well but impending GST and subsequent pricing uncertainty fizzled out the wholesale demand in Jun-17. Also, dealers were busy clearing inventory as tax offset was not available for certain components," the study noted.

"However, demand in July 2017 registered healthy growth riding on recovery in domestic wholesale dispatches, underlying robust demand drivers and inventory re-stocking by dealers."

The study said the PV segment is one of the important economic indicators and reveals a lot about the health of the economy.

"In this regard, the Indian PV industry is likely to consolidate further on its growth path for the fourth year in a row since FY2014, the year when it last witnessed a blip," it said.

The study pointed out that another key area was double-digit export growth at 13.8 per cent during Q1FY18, which contributed about 20 per cent of the total wholesale volume sales during FY17 and Q1FY18, with Ford, General Motors and Volkswagen emerging as the key growth drivers.

"Industry's long-term prospects remain favourable given the low penetration levels and increasing disposable income," said Subrata Ray, Senior Group Vice President, Corporate Sector ratings, ICRA.

"The overall macroeconomic indicators too remain favourable, with GDP growth expected at 7.2 per cent in FY18, normal monsoon expectations which will boost rural income, and the price cut post GST that will provide impetus to the industry. This apart, the low cost of car ownership due to falling interest rate and subdued fuel prices will help," he said.

The study added that impending increase in cess from 15 per cent to 25 per cent on larger vehicles poses challenge and could derail demand momentum in the interim.

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