Passenger vehicle and two-wheeler sales will grow at moderated rates as pent-up demand dries up in 2024-25, according to India Ratings and Research (Ind-Ra).

Ind-Ra forecasts a sales volume growth rate of 6%-9% for the auto sector.

“Demand would be backed by personal consumption factors including higher disposable income, and recovery in consumer sentiments, though drying up of pent-up demand will moderate the growth rate,” says Shruti Saboo, director, Corporate Ratings, Ind-Ra.

A slower pace of infrastructure and other industrial activities in 1HFY25, amid the upcoming Lok Sabha 2024 elections along with higher base achieved over FY22-FY24, could lead to flattish sales in the commercial vehicles (CV) segment, the rating agency says.

"Despite continued infrastructure spending, ongoing capex and improving industrial production, CV sales could moderate due to the interruptions related to the 2024 Lok Sabha elections. Trends of premiumisation will continue, supporting sales of utility vehicles and more than 150CC motorcycles," says Saboo.

PV volumes could grow 5%-8% in FY25, as the pent-up demand normalises, the ratings agency says. Utility vehicle sales will continue to outpace overall PV industry growth. Two-wheelers revival will continue in FY25 with a growth rate of 7%-10%, led by a robust urban demand and an improving rural demand. CV sales volumes could be flat to low single-digit degrowth in FY25 after recording a moderated growth of 2%-4% in FY24.

Ind-Ra believes exports could remain subdued in FY25, especially in two-wheelers and three-wheelers, as the key exporting geographies would continue to grapple with macroeconomic headwinds including high inflation, limited availability of foreign exchange, and weakened currencies.

"While the conventional markets such as Africa and South Asia are likely to underperform, it would be partly offset by increasing presence of Indian OEMs in markets namely Latin America, Middle East, Philippines. During 9MFY24, exports fell 12% yoy; however, PV exports increased 3% yoy on the back of the improved supply chain situation. PV is likely to outperform other segments as OEMs look at exports market to improve their overall capacity utilisation," it says.

Industry revenues growth could be in the range of 5%-7% yoy in FY25, supported by the volume growth, increased mix of premium products, although offset by limited price hikes by original equipment manufacturers (OEMs) and reduced proportion of higher priced CV sales. EBITDA margins are also likely to remain flat in FY25, led by largely stable raw material prices and vehicle prices, after improving around 250 basis points in FY24.

Capex in FY25 is likely to be towards new products and technologies, EV platform, and completion of capacities expansion for certain players, says Ind-Ra. EV specific OEMs would look at capacity enhancements to meet the increasing demand, although it will be a smaller proportion of the overall capex outgo, it says.

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