Auto Sector: Driving in the fast lane

Auto Sector: Driving in the fast lane

Market Outlook
by 5paisa Research Team Last Updated: 2022-07-20T21:45:07+05:30

By 2026, the Indian auto industry is expected to be the world's third-largest automotive market in terms of volume.  

On the global level, India is the largest tractor manufacturer, second-largest bus manufacturer and third-largest heavy trucks manufacturer in the world.

Looking at the last one year, the auto industry faced various headwinds such as the second wave of the pandemic, commodity prices, semiconductor shortages and then the Ukraine-Russia conflict. Barring the supply chain issues due to the Ukraine-Russia conflict, the other problems have relatively eased.  

To illustrate further, as per the estimates provided by Acuité Ratings & Research, the top players in the PVs, CVs and 2Ws segment across the country witnessed an improvement in demand during June 2022. This improvement was observed on a year as well as a sequential basis.  

For the latest month June 2022, in the PV segment, the total domestic sales witnessed the growth of 27.9% YoY and 9% MoM. Commenting on this, Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research Ltd said, “In our opinion, better availability of semiconductor chips, new upcoming product launches for many players, moderation in commodity prices and improving consumer sentiments is expected to improve the growth momentum of PVs across the country.”   

In the 2W segment, the domestic sales of the top 5 players grew at a rate of 20.2% YoY and 5.2% MoM. This growth came on the back of a gradual improvement in the domestic demand post the harvest of the rabi crop coupled with an increase in rural incomes.

In the CV segment, the domestic sales grew 85.2% YoY and 5.5% MoM. This growth was supported by a rise in infrastructure asset creation across the country. Moreover, the high demand of e-commerce has led to an increase in demand for LCVs across the country.  

As per the numbers released by the Society of Indian Automobile Manufacturers (SIAM), in FY22, the auto industry produced a total of 22,933,230 vehicles as against 22,655,609 units in FY21. This figure is inclusive of passenger vehicles, commercial vehicles, three-wheelers, two-wheelers, and quadricycles produced in the period between April 2021 and March 2022. In FY22, on the domestic sales front, except for passenger cars and two-wheelers, all the segments posted a growth in sales figures.  

Looking at the emerging market trends, the EV trend has been gaining ground for quite some time now. The rising demand for EVs has come at a time when the government is trying to bring down carbon emissions and reduce dependency on conventional fuels like petrol and diesel. It is estimated that between 2020-27, the EV market shall grow at a CAGR of 44% to achieve 6.34 million unit annual sales by the year 2027. By 2030, the EV industry will create five crore direct and indirect jobs. In the Union Budget 2022-23, the government introduced a battery-swapping policy. This policy will allow drained batteries to be swapped with charged ones at designated charging stations, and make EVs more viable for potential customers.  

In the EV segment, Tata Motors stands strong as the market leader in the e-mobility wave in India. In FY22, the company commanded a market share of 87%. To date, the company has rolled over 25000 Tata EVs on the road in personal as well as the fleet segment.

Further, Greaves Cotton Ltd, a diversified multi-product and multi-location engineering company announced in early June this year that it secured funding for a total of USD 220 million from Abdul Latif Jameel. This funding pertained to Greaves Electric Mobility (GEM), the electric mobility business of the company. Abdul Latif Jameel has been one of the leading independent distributors of Toyota products for over 65 years. With such extensive global experience in the automotive market, this collaboration can be deemed a significant one.  

As per the company’s press release, GEM shall utilize the secured proceeds to develop new products and associated technologies, and build brand awareness to transform Greaves Cotton into a leading global EV manufacturer.  


The auto industry derives support from various initiatives such as the Automotive Mission Plan and the National Automotive Testing and R&D Infrastructure Project. Further, in an attempt to encourage foreign investment, the government has allowed 100% foreign direct investment (FDI) to the sector under the automatic route. The introduction of the Production Linked Incentive (PLI) Scheme is another attempt to strengthen the industry. Apart from these schemes, the rising middle-class income along with a huge youth population are other factors that will further boost the growth of the auto industry in the coming years.  

Financial Highlights 

The FY22 results of 12 listed automobile companies forming a part of the top 1000 companies (by market cap) show that the net sales grew by 11% on average during the year. However, due to input costs pressure, the operating profits came down by 5.41% YoY on average, thereby adversely affecting the margins. Among the large caps, only Mahindra & Mahindra has managed to beat its peers in this aspect. M&M’s operating margins in FY22 expanded by 326 bps YoY to 17.32%. Similarly, the company’s PAT increased exceptionally by over 2,000% YoY to Rs 4,935 crore as against Rs 230 crore in FY21.

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