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Automobiles

India's automakers plan to launch 50 new models to spur demand

Move to fuel efficiency standards could prove a challenge in short term

India's automobile industry is hoping for a recovery in demand in 2020, thanks to the launch of new models and government measures to spur consumer spending.   © Reuters

MUMBAI (NewsRise) -- India's automobile industry is expecting a recovery in demand next year, thanks to the launch of new models and government measures to spur consumer spending.

For more than a year, automakers in Asia's third-largest economy have been grappling with one of the worst-ever downturns amid weakening consumer sentiment and tighter credit availability. India's gross domestic product expanded at the slowest pace in six years in the July-September period as banks clamped down on lending amid a pile up of bad debt.

According to the Society of Indian Automobile Manufacturers, or SIAM, the auto industry is heading toward the first annual decline in vehicle sales in six years in the fiscal year ending in March, spurring cutbacks in production and a rise in job losses.

However, with a number of new model launches, including those of electric vehicles, expected early next year and improving liquidity conditions after a string of interest rate cuts by the central bank, the industry is hoping for a recovery in demand.

Indian automakers are set to unveil 50 new models at the upcoming Auto Expo on Feb. 5, SIAM said last week. The industry's flagship event will be attended by top domestic automakers such as Maruti Suzuki India and Tata Motors and foreign brands such as Germany's Volkswagen and China's Great Wall Motor, local media reports said.

"We turn positive on the auto sector with a view that the industry will see a strong up-cycle over the next two to three years," IIFL said in a report earlier this month. The brokerage forecast that the industry's revenue will grow more than 50% between fiscal year 2020 and 2023, with "a magnified impact on earnings."

Shares of Maruti were little changed for the year, while those of Tata Motors are up 6.3%. The BSE Auto Index has slumped 10.5% in the same period.

"We believe the weakness in stock prices, if any, would provide an opportunity to participate in the medium-term recovery in the sector," IIFL said. The brokerage has set a 12-month target price for Maruti at 9,000 rupees a share, and that for Tata Motors at 220 rupees. Its target price for Mahindra and Mahindra stands at 590 rupees a share.

Maruti shares rose 0.9% to close at 7,414.9 rupees in Mumbai trading on Monday while Tata Motors added 4.3% at 183.6 rupees. Mahindra advanced 1.2% to 536.5 rupees. The benchmark S&P BSE Sensex ended little changed.

The main challenge for the industry in the near term is India's move to the new Euro VI fuel efficiency standard vehicles.

"After enduring a tough 12 months, the auto industry is seeing signs of stability across segments," online trading company Motilal Oswal said in a report. "While the worst seems to be over, we don't expect secular recovery considering the last hurdle in the form of upcoming Euro VI transition."

According to the brokerage, Maruti is best-placed in the entire auto manufacturing space to weather these headwinds, particularly the transition to new fuel standards due to limited price inflation in 80% of its portfolio.

It has a "Buy" rating on Maruti stock with a target price of 7,950 rupees a share.

--Dhanya Ann Thoppil

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