Fruits Of Export Growth Not Equally Shared
BMI View : While Indian vehicle exports registered strong growth in August 2013 on the back of the weak Indian rupee, we highlight that only certain segments are enjoying this windfall and automakers need to continue targeting new markets to sustain their export growth momentum. A failure by the government to expand its state ports in a timely manner could see this recent surge in exports peter out.
We have highlighted for a while that India's auto sector needs to boost its vehicle exports to cash in on the weak rupee at a time when the domestic market remains in the doldrums (see 'Exports Will Be Crucial For Maruti To Combat Weak Rupee', July 31). On the surface, it does seem as though the industry is finally getting some respite from depressed domestic demand with total vehicle exports (includes two and three-wheeler exports) in August rising to an all-time high of 288,866 units, a gain of 24.9% year-on-year (y-o-y).
|Gains Not Evenly Distributed Across Segments|
|India - Total Industry Auto Exports, Units (LHS); % Chg y-o-y (RHS)|
Although the solid export figures in August show that the sector is finally getting its act together, we caution against jumping to the conclusion that all is well among local manufacturers. In this piece, we illustrate the divergent export fortunes among segments and how certain firms have benefited more than others.
Motorcycle Exports Erratic But Smaller Players Outperforming
Two-wheeler (includes motorcycles, mopeds, scooters and scooterettes) export growth has been erratic in the past few months due to motorcycle export growth (the largest segment) oscillating between positive and negative values. That said, August motorcycle exports registered an impressive rise of 24.1% y-o-y, to 187,309 units and we believe manufacturers could build on this positive momentum in the coming months.
Furthermore, anecdotal evidence suggests that the smaller two-wheeler players have been able to grow their exports faster, partly due to a lower base. For example, TVS Motor saw its exports rise 47.0% y-o-y in September, to 27,577 units. Two-wheeler firms have been diversifying into Latin American and African markets and we expect them to continue relying on these markets to boost overseas sales.
|Better Times Ahead|
|India - Motorcycle Exports, Units (LHS); % Chg y-o-y (RHS)|
PV Segment Greater Beneficiary Of Weak Rupee
While growth in passenger vehicle (PV) exports lagged commercial vehicle (CV) export growth from late 2009 to early 2013, the trend has recently turned in favour of the PV segment as the accompanying chart shows. The PV segment, which includes passenger cars, utility vehicles and vans, has been better able to capitalise on the recent bout of local currency weakness and boost its exports versus the CV segment, whose exports remain in a slump.
|CV Exports Clearly Not Seeing Weak Rupee Benefit|
|India - Passenger Vehicle And CV Exports (LHS); Export Growth, % (RHS)|
That said, we believe more needs to be done by automakers to boost their exports. While total industry export figures for September are still unavailable, individual company releases show that besides the 180.8% y-o-y surge in Maruti Suzuki's exports, to 14,565 units, most automakers have seen their exports contract on a y-o-y basis. One reason for this could be the strong European focus (a region that is still struggling) of the car industry's exports, leading us to believe that exporters need to target alternative markets to see sustained growth.
Ports Expansion Cutback Threatens Export Growth
One risk we see to exports is the recent plan by the Indian government to curtail the expansion of some of its state ports such as Chennai Port, due to pressure from ratings agencies to rein in the budget deficit. We have highlighted that while a lot of local manufacturers have spare capacity due to weak domestic demand, they are not able to boost exports in the face of structural bottlenecks (see 'Addressing Structural Bottlenecks Key To Exports Boom', September 26). A failure to expand vital infrastructure could see the sector squandering away the advantage of a more competitive currency.