Auto sector growth momentum to moderate in FY25: ICRA

The domestic automotive industry, which has seen moderate growth in FY24, is expected to see this trend continue in FY25. 

Aided by a preference for personal mobility and stable semiconductor supplies, passenger vehicle (PV) industry volumes are estimated to reach an all-time high of around 4.1 million units in FY2024 (representing a growth of 6-9% over FY2023). 

Even as the underlying demand drivers remain supportive, the volume growth for the segment is likely to moderate to 3-6% (from an elevated base). Lower growth expectation for next year partly stems from a high base and, to some extent, by waning pent-up replacement demand, which supported the industry over the past couple of years. 

In addition, the build-up of inventory at dealerships at 55-58 days (as of the end of December 2023) also suggests potential moderation in demand for PVs. 

The commercial vehicle (CV) industry saw robust growth in volumes in FY2023. On an elevated base, the growth is expected to remain at modest levels in FY2024 (2-4% YoY), with the overall industry volumes approaching pre-pandemic highs.

For FY2025, CV volumes are expected to witness a mid-single digit de-growth; inherent exposure of infrastructure activities to the model code of conduct ahead of the upcoming General elections coupled with high base effect is likely to impact the volumes in H1 FY2025. Sustenance of the macro-economic environment and improvement in infrastructure activity/last-mile transportation remain key monitorables.

In contrast to these segments wherein volumes are near or have exceeded pre-pandemic highs, the two-wheeler industry has struggled with industry volumes still below the pre-covid peak levels, with the purchasing power of the consumers at the bottom end of the pyramid being eroded by the significant rise in vehicle prices (a result of price hikes to combat inflationary pressures and meet stringent regulatory requirements).

On a curtailed base, the 2W segment volumes are estimated to grow by 8-11% in FY2024; the gradual recovery to pre-pandemics highs is expected to continue with 7-10% growth in FY2025 aided by favourable structural factors like rising per capita income, urbanization, financing availability, etc. Our channel check with dealerships indicates that the demand has remained relatively stable even after the festive season, which is also reflected by stable inventory levels at two-wheeler dealerships. 

Shamsher Dewan, Senior Vice President & Group Head - Corporate Ratings, ICRA, said, "ICRA expects the automotive industry demand to remain steady over the near term, with growth across segments expected to remain at varied levels in FY2025, largely attributable to varied base levels." 

"While the two-wheeler, passenger vehicle, and three-wheeler vehicle segment volumes would continue to trend upwards, aided by supportive demand drivers, a healthy base is expected to lead to flattish volumes for the commercial vehicle industry, with uncertainty stemming from deferment in new project awards due to the model code of conduct during the general elections in H1 FY2025."