Category Archive : Sector Analysis

Housing Finance Companies in India

Review of 6 Housing Finance Companies in India

Outlook on Housing Finance Industry

What are the best housing finance companies to invest? Let us see the top performing companies in housing finance industry and also the recent outlook on Housing Finance Industry in India.

The NBFC (Non-Banking Financial Company) crisis in India has made noticeable the funding and low equity capitalisation issues of the housing finance company(HFC) sector. In the last 6-9 months a lot of things have happened in the housing loans industry. Companies like DHFL and Indiabulls Housing Finance faced seen huge losses in terms of business as well as market share. As a result of the asset-liability mismatch in these companies. They had to sell their good assets to other housing finance companies.

So, which are the other companies which can be benefited from this and can accommodate the market share lost by these companies?

 Review of Housing Finance Companies in India
Review of Housing Finance Companies in India

Top Housing Finance Companies To Be Benefited

1. HDFC Ltd

  • This is the biggest housing finance company as of right now, in terms of market share or overall housing finance book. It has highest market capitalisation of Rs.3,76,119.60 Cr, among all other housing finance companies.
  • HDFC Ltd has given out housing loans worth Rs. 4.28 lakh Cr.
  • SBI has a home loan market of around Rs. 4 lakh Cr. (SBI is not a housing finance company, but this data has only mentioned for the sake of comparison) One can understand that, even with SBI being such a huge bank, HDFC Ltd has more penetration and a stronger brand value.
  • HDFC Ltd can now even enter in to the affordable housing finance market as a result of the merger of its subsidiary Gruh Finance with Bandhan Bank. Thus, HDFC can now aggressively push its affordable housing schemes.
  • Also, with the help of Housing For All scheme launched by the government, HDFC Ltd can benefit a lot from it.

2. LIC Housing Finance Ltd

  • LIC Housing Finance Ltd. is one of the leading companies in housing finance industry.
  • It has market capitalisation of Rs.27,178 Cr.
  • Housing loans given out by LIC Housing Finance are worth Rs. 1.95 lakh Cr.

3. BajaJ Finance Ltd

  • The housing finance arm of Bajaj finance Ltd is among the emerging housing finance companies. It is vey aggressively trying to gain market share in the housing finance industry.
  • Market capitalization of Bajaj Finance is Rs.205,259.35 Cr.
  • The company has exceptional fundamentals. It also has a great track record of performance as well as an excellent growth outlook going forward.
  • For the detailed stock analysis, Please refer our article : Why Bajaj Finance Stock Looks Attractive?

6. Piramal Capital & Housing Finance Ltd

  • Piramal Capital & Housing Finance (PCHF) is a wholly owned subsidiary of Piramal Enterprises Limited (the flagship company of Piramal Group).
  • This company has gained a lot of recognition in the recent times. It is making very aggressive efforts to make their hold in this housing finance industry.
  • Loan book of the Piramal Housing Finance segment grew to Rs.5,188 Cr in FY2019 from Rs.1,210 Cr in FY2018. Thus, a prominent growth of 3.28 times year-on-year seen in its loan book, indicates its aggressiveness in the expansion strategies.

Other HOUSING FINANCE COMPANIES

DHFL and Indiabulls Housing Finance Companies were among the top 5 housing finance companies earlier. But, due to the Asset-Liability mismatch issue, market share of these two companies has been impacted adversely.

1.DHFL

  • Everyone knows the things that are going around DHFL. The company has been in the news continuously, and for negative reasons only. It is not being able to each deadline. The company was not even able to repay the loans that it had taken which maturities in June 2019.
  • The Q4FY19 results have been declared yet. The loan book of DHFL as on Q3FY19 stood at Rs. 1.26 lakh Cr. There are rumours in the market that this loan book amount has now gone below Rs. 0.90 lakh Cr.

2. Indiabulls Housing Finance Ltd

  • Indiabulls Housing Finance Ltd has also been in the new recently for the reason similar to DHFL.
  • As per the Q4FY19 results declared by the company, a loan of just Rs.0.92 lakh Cr is remaining with them. This amount at a certain point had reached around Rs.1.3-1.4 lakh Cr.
  • The company has experienced a loss of close to Rs. 40,000-50,000 Cr in their market in home loans disbursements. They had to face all these problems because of their asset liability mismatch.

Summary

  • HDFC Ltd and LIC Housing Finance Ltd are the 2 major players in the Housing Finance industry, which remained undeterred during the asset-liability mismatch problems faced by housing finance companies.
  • DHFL and Indiabulls HFL had asset liability mismatches because they raised short term money and lent long term money. So, when the maturities of short term loans taken by them were due, they were not able to repay them as they had given out that money for longer period of time.
  • Thus, after this asset liability mismatch the 2 companies had to sell their assets (loans given out) to the other housing finance companies.
  • The market share of home loan disbursement lost by DHFL and IHFL was acquired by HDFC Ltd and LIC HFL. These 2 companies are the clear winner in this situation.
  • Amongst the new players, Baja Finance (housing finance arm) and Piramal HFL are the 2 companies which are performing very well and trying to gain market shares.
  • All in all, HDFC Ltd is the clear winner among all the existing housing finance companies as they have the aggressiveness to grow their business, the cashflow support needed to grow, experience, brand name and the backing of the HDFC group.

Notes: –

  • The numbers that are used are approximate and have been rounded for presentation purposes.
  • We are not in any way saying that these are bad companies or that the stock of these companies are bad.
  • We are also not suggesting anyone to immediately go and buy the stocks or invest in the stock markets.
  • Only an analysis has been presented here. No judgments or final statements are being made here.
Top 5 Sectors To Watch

Modi 2.0 – Top 5 Sectors to Invest

Best Sectors To Invest in India

In this article, we will see which are the top 5 sectors that are going to get the focus from Modi 2.0 government. After the current Lok Sabha election results some of the sectors will see movements and developments in them. This government has their complete focus on the economic challenges.

Most probably the government won’t bring any structural changes. In coming times, the government might take calls related to infrastructure and economic development.

Modi 2.0 – Top 5 Sectors

The Modi 2.0 – Top 5 Sectors that can catch the limelight in the near future are: –

Modi 2.0 - Top 5 Sectors
Modi 2.0 – Top 5 Sectors To Watch

1. Banking

  • Both PSU as well as Private banks are included here. Private banks are better options than public banks as public banks can have a negative impact because of the government involvement. Thus, long term investments in private banks can be a safe option.
  • There were a lot of problems in Yes Bank, IL&FS crisis. Hence, even in private sector banks should be chosen wisely after studying them and analysing the various aspects related to it.
  • The credit offtake in India, that is the loans given out in India are 70% from the PSU banks. Thus here, the private banks have the opportunity to increase their credit offtake. This is possible as the government is focused on merger of PSU banks, the PSU banks will be busy with issues such as unions, employee opposition, etc and here banks will not be able to focus on their business which will in turn can be picked up by the private banks.
  • In the corporate/wholesale banking segment SBI, ICIC and IndusInd banks can be great investment options. Similarly, HDFC, Kotak Mahindra and IDFC First banks can be attractive investments in the retail banking segment.
  • Therefore, bank sector looks very bullish at this point.

2. Infrastructure

  • The new government is expected to continue with its infrastructure thrust. Many articles and analysts are speculating in which sector will the majority investments happen, and the speculation reveals Infrastructure as the that sector. This is a very debt-ridden kind off sector. Thus, investments in a direct involved infrastructure company may not be advisable.
  • Companies or sub sectors which support the automobile sector indirectly are called as Auto-ancillaries. Similarly, there are some companies & sub-sectors which are indirectly involved in the infrastructure sector. These companies & sub-sectors can be called as Infra-ancillaries companies.
  • And one such sub-sector is Cement sector. Cement sector can see huge increase in their order book. The government scheme called ‘Housing For All’ is to provide everyone with a house till 2021. Thus, this will be very beneficial to the cement sector.
  • In the cement sector, Ultratech Cement and ACC are 2 very good companies out of which the former seems to be having premium valuation and the latter is fairly valued.

3. Insurance

  • In the last term, the government gave a lot of importance to financial inclusion. Thus, in the current term, the government can give focus to an allied sector of Finance, the insurance sector.
  • Thus, Insurance sector too is very bullish in this situation the major reason behind it being under-penetration. There is very poor penetration in this sector. Not many people have insured themselves adequately. As the awareness about insurance will increase in India this sector will start picking up pace and may even soon see double digit growths.
  • The sector includes both General as well as Life Insurance. ICICI Lombard General Insurance & HDFC Life Insurance are looking very good investment options. We have analyzed both the stocks – ICICI Lombard General Insurance & HDFC Life Insurance, in our detailed stock analysis subscription.
  • This does not means that the other companies of the PSU insurance companies are bad, but the growth and value for investment these 2 companies may give is better.

4. Real Estate Allied Sectors : Paint & Housing FInance Companies

A. Paint Industry :

  • There is a phenomenal growth in the housing sector front with rapid urbanization and easy availability of home loans, which have become the prime drivers of growth in the decorative paint segment.
  • Whereas, Industrial market accounts for general industrial paints, automotive coatings, powder coatings, OEM paints and others.
  • We have done a comprehensive analysis of paint industry in India.

B. Housing Finance Companies :

  • Housing Finance companies can also benefit from the ‘Housing For All’ scheme launched by the government.
  • HDFC Ltd is an excellent housing finance company. Their business model is also very good.

5. Automobile

  • This sector is going through a lot of troubles and changes right now.
  • The strong government is not the direct reason for this sector to perform good in the coming times, but the cyclicality of this industry. After the election results, the following couple of years are very glorious for this sector. Automobile is a cyclical sector and has a cycle of 4-5 years. The sector is at the bottom right now and from this point forward it may only grow.
  • Electric Vehicles are the future of Automobile sector. But as they are not yet developed fully in the developed market it will be time before it comes to the Indian market. Tata Motors, Ashok Leyland & Maruti are good investment options.

Notes: –

  • The numbers that are used are approximate and have been rounded for presentation purposes.
  • We are also not suggesting anyone to immediately go and buy these stocks or invest in the stock markets.
  • Only an analysis has been presented here. No judgments or final statements are being made here.
Analyzing Paint Industry in India

Analysis of Top 4 Paint Stocks in India

Paint Industry Overview in India

Introduction

In this article, we will do a comprehensive analysis of paint industry in India. Akzo Nobel India Ltd, Asian Paints Ltd, Berger Paints India Ltd and Kansai Nerolac Paints Ltd are the 4 listed biggest paint companies in India.

There is a phenomenal growth in the housing sector front with rapid urbanization and easy availability of home loans, which have become the prime drivers of growth in the decorative paint segment. Whereas, Industrial market accounts for general industrial paints, automotive coatings, powder coatings, OEM paints and others.

Best Paint Stocks in India

  1. Akzo Nobel India has been present in India for over 60 years and is a significant player in the paints industry. In 2008, the company became a member of the Akzo Nobel Group. It is most famous for its Dulux brand.
  2. Asian Paints Limited is an Indian multinational paint company having a headquarter in Mumbai, Maharashtra. The Company’s main business is manufacturing, selling and distribution of paints, coatings, products related to home decor, bath fittings and providing of related services.
  3. Berger Paints India Ltd is a paint company based in India. The company is having headquarter at Kolkata and has 14 manufacturing units in India, 2 in Nepal, 1 each in Poland and Russia
  4. Kansai Nerolac Paints Limited is the largest industrial paint and third largest decorative paint company of India based in Mumbai. It is a subsidiary of Kansai Paint of Japan.

Paint Industry in India

  • The Indian paint industry is worth around Rs. 50,000 Cr.
  • Till 2016, organised paint companies in India had a market share of only 65%.
    The unorganised paint companies was holding the rest 35% market share.
  • After GST application the paint industry too got streamlined and the organised players benefited from it. Now, the organised paint companies in India make up for the 80% market share and the rest 20% market share is distributed among the unorganised players.
  • Asian Paints has the biggest market share in the industry if 41%-42%. The next company is Berger Paints with a market share of 13%-14%. Kansai Nerolac Paints too has a market share of around 13%-14%. Akzo Nobel India has a market share of 9%-10%.
  • These are the 4 biggest paint companies in India. There are also some other listed paint companies in India such as Shalimar Paints.
  • The overall Paint Industry in India has seen a correction of 15%-20%.

Analysis of the Top 4 Listed Paint Companies in India

Analysis of Paint Industry in India
Analysis of Paint Industry in India
  • Market capitalization : Asian Paints has the biggest market capitalization followed by Berger, Kansai Nerolac and Akzo Noble having the smallest. Asian Paints and Berger Paints are larger cap companies. Berger Paints has come on the border line of large cap and mid cap categorisation as its stock got corrected. Kansai Nerolac is a mid-cap company Akzo Nobel India is a small cap company.
  • Share Prices : All the 4 stocks are 15%-20% corrected from their respective 52 week highs. The biggest reason behind this could be crude oil because paint industry requires crude oil and its derivates as raw materials. Thus, if the input cost increase then it can have an impact on margins which ultimately has effect on the share prices.
  • PE Ratio : Asian Paints & Berger Paints are enjoying premium PE valuations. All the 4 companies are trading with PE values above their historical PE values. This means that the paint industry has always traded with premium valuations. And in comparison with that, the industry is trading with overvalued PE values currently.
  • D/E Ratio : Akzo Nobel and Kansai, which are also both foreign players, are running their businesses on 0-debt policy. As Berger Paints has the highest D/E ratio is has the lowest interest coverage ratio (ICR). Also, if you have 0-debt then the value of ICR holds no value.
  • Promoter Holding : Akzo Nobel India, Berger Paints and Kansai Nerolac all have almost same promoter holding, which is high. Out of the total holding of 52.79% of Asian Paints, 11.98% promoter holding is pledged. The pledging has been done for some other business activities which the promoters are interested in and not for the core paints business. Asian Paints is in a high growth industry and has a consumption driven business. So, when companies which are performing so well and are in their growth phases, do these kind of activities then it can be an alarming sign.
  • Profit Growth : Akzo Nobel has a very good 5-years profit growth. Kansai Nerolac has a 5-years sales growth of 10.45% which is very healthy.
  • Enterprise Value : It is a measure of a company’s total value. It not only include the equity capital of the company but also the debt capital of the company. The market cap and the enterprise value of these companies are almost same, which means there are n discrepancies here.
  • Operating Profit Margin : Asian Paints has the highest Operating profit margin which is a very positive sign for the company.

Summary

  • Automobile industry and other similar industries which are heavily dependent upon crude oil come up with alternative energy resources, then demand for crude oil might go down.
  • The paints sector is raw material intensive, with over 300 raw materials (50% petro-based derivatives) involved in the manufacturing process. Since most of the raw materials are petroleum based, the industry benefits from softening crude prices.
  • And when the demand for crude oil goes down, that time paint industry will benefit from this as the crude oil prices will go down and the input costs of the companies will also go down and the margins will improve.
  • All the companies of Paint Industry in India have premium PE values which are well above their historical PE values and will remain the same way for some more time in the future.

Notes: –

  • The numbers that are used are approximate and have been rounded for presentation purposes.
  • We are not in any way saying that these are bad companies, or the stock of this companies are bad.
  • We are also not suggesting anyone to immediately go and buy these stocks or invest in the stock markets.
  • Only an analysis has been presented here. No judgments or final statements are being made here.
Financials-of-Telecom-Sector-Stocks

Indian Telecom Sector Analysis

Jio vs Airtel vs Vodafone Idea

Introduction

In this article, we will analyze Indian Telecom Sector detail. There are 3 telecom companies in India which are listed namely, Vodafone Idea, Airtel and Reliance Jio.

Reliance Jio isn’t directly listed but Reliance Industries is of which Reliance Jio is  a part. The extraordinary valuation that Reliance Industries is currently enjoying is also majorly supported by the underlying valuation of Reliance Jio.

How does the Telecom sector look right now? What is the future of Telecom sector?

  • The investments by institutional Investors in the companies like Bharti Airtel and Vodafone Idea is decreasing gradually. And the these free float share are being moved to the general public. So ultimately, general public is the one experiencing major losses.
  • Thus, which telecom company should an investor invest in? Or which telecom is the company that one should have on their radar for investment purposes? Let’s analyse that here:

Subscriber Base

  • Before the entry of Jio, Airtel used to be 1st, followed by Vodafone and Idea on 2nd and 3rd place respectively in terms of subscriber base.
  • Vodafone and Idea merged in to one company last year after which they became the biggest company in terms of customers, that is their subscriber base. They have a subscriber base of close to 40.3 Cr.
  • Currently, Jio is on the 2nd position. In 2016, they started to add customers and in almost within 3 years they have reached this position. They have a subscriber base of 30.6 Cr.
  • And now, Airtel has come down to 3rd position with a subscriber base of 28.4 Cr.
  • On May 7th 2019, the Q4 results of Bharti Airtel were declared in which they have told that only 50,000 new customers were added to their subscriber base in the period of Jan-March 2019. Whereas on the other hand, Jio is adding new customers in crores to its base. So, a vast distance between these numbers can be clearly observed. As for Vodafone Idea, though 40.3 Cr looks like huge number, but they have lost almost 4-5 Cr customers in the last 2-3 quarters. This is a very huge loss for them.

Financial Numbers

Financials of Telecom Sector Stocks
Financials of Telecom Sector Stocks
  • Both the companies have huge D/E ratio.
  • The companies have a debt repayment schedule of almost Rs. 11,000-12,000 lakhs every year.
  • And the companies are not able to keep up with this schedule because Interest Coverage Ratios are very low. The companies are having hard time even repaying the interest on the debt.

Debt Problems

  • Because of such negative and disappointing numbers all the credit rating agencies have given the debt papers of these companies Junk rating. Thus, these companies are finding it difficult to raise further debt.
  • Now, how will these companies raise money to pay these debt? The companies can do so by selling their asses, which Bharti Airtel has already started to do.
  • Some parts of Bharti Infratel is being sold. There talks to sell some stake in the African business. If one looks at the current financial numbers declared by the company one can see around Rs. 2,000 Cr in the other income which has come from selling their assets as a part of restructuring.
  • The other method to raise money is through equity. In times when their stock and the market as a whole is not performing well, no new investor would be interested. For this, Bharti Airtel has brought Rights Issue. How successful this decision is will be proved in the coming times.
  • Therefore, these two companies are left with just 2 option to raise money further to repay their debt, either to sale of their assets or though equity.
  • Reliance Industries has a debt of almost Rs. 3 lakh Cr. Though there are no clear numbers of how much of this is of Jio’s, but it would definitely be a sizeable portion. Thus, Reliance Jio isn’t facing debt problems as it has a strong Reliance Industries company and its business backing it.

Price Wars

  • Price wars here are for the prices of various calling, internet and value added services. Aggressive cuts are being made in the prices of these features and services.
  • Jio has started a price war which Vodafone-Idea are not comfortable with and are not able to cope with. And this might continue till the time Jio reaches 1st position.

Summary

  • In these troubled time, telecom companies are finding it very difficult to raise new funds.
  • Currently, Jio looks like a winner in terms of subscriber base. They have a clear plan and are well equipped to reach the 1st position as well.
  • Jio has no plans to stop the price wars until it has washed out the other companies.
  • As of now investors should stay away from Vodafone Idea and Bharti Airtel. If at all one really wants allocation in the telecom sector, then they can take allocation in Reliance Industries.
Reasons Why Auto Companies' Stocks Are Falling

5 Reasons – Why Auto Stocks Are Going Down?

India’s Auto Sector Update

Introduction

In this article, we will see why Auto Sector Companies stocks are going down. Why almost all the Auto Sector Companies‘ stocks are trading below 30%-35%? What are the reasons behind this decline? There are main 4-5 reasons for the same. Lets discuss these reasons in detail.

5 Key Reasons : Why Auto Companies’ Stocks Are Going Down?

Why Auto Companies Stocks Are Falling?
Why Auto Companies Stocks Are Falling?

1.Liquidity Crisis :

  • Because of IL&FS problem, it is going difficult for the Non-Banking Financial Companies (NBFCs) to raise the money. Due to which these NBFCs are not able to execute the lending as aggressively as they want. For example, the NBFC which was raising the funds from the market at 7%-8% earlier, have to pay 10%-10.5% interest for the same amount of fund raising. So in such situation, how these NBFCs can lend money to other retail customers (who will be taking loans from these NBFCs) at the comparative lower or discounted interest rates. This overall scenario is called as “Liquidity Crisis”. This liquidity crisis in NBFCs is impacting the auto sector very badly.
  • But this is not the situation in case of Banks. On the other hand, Banks (especially PSU Banks) are having the clear mandates in which they are suggested to focus more on the retail loans than the corporate loans.
  • In case of Retail loans, there are 2 main important types of loans –
  • Home Loan & Vehicle Loan. Thus, PSU banks are having availability of cash ( ie. having more liquidity) with them as compared to NBFCs.
  • Still the aggressiveness in the business can be seen in the NBFCs rather than PSU banks like SBI, Bank of India, Punjab National Bank, Union Bank of India, Bank of Baroda etc. These PSU banks are not having that high level of aggressive business strategies like NBFCs.
  • But, in the intension of high business growth, there is a lot of pushing in case of NBFCs. Thus, because of liquidity crisis for NBFCs, lot of problems have arisen in loans disbursement process, impacting the sales badly.
  • Thus, Liquidity is the foremost reason which has come into the light after IL&FS troubles.

2.Strict Emission Norms (Migration to Bharat Stage VI Norms) :

What Are Bharat Stage VI Norms?
  • Bharat Stage (BS) VI Norms have been implemented from 1st April, 2019. The Bharat Stage are standards instituted by the government to regulate emission of air pollutants from motor vehicles.
  • Bharat Stage VI (BS VI) is an emission standard that will bring much-needed changes in the Indian automobile industry in terms of pollutant emissions. With this emission norm coming into effect, India will come at par with the US, European countries and other advanced automotive markets across the globe.
  • India is currently following BS IV norms that were adopted this year across the country.
Impact of BHARAT STAGE VI NORMS
  • Compliance with BS-VI norms will require higher investment in technology to upgrade vehicles in stock and making new vehicles. This will also mean fewer launches till the deadline. Those who buy Bharat Stage VI-compliant vehicles will have to pay more since such vehicles will cost automakers more and they will pass on the additional cost to the buyers. The Bharat Stage VI-compliant fuel too will be more expensive.
  • As a result of the same, Maruti Suzuki has announced that they are going to stop manufacturing the diesel variant cars from 1st April, 2020. Almost 30% volume of Maruti comes from Diesel cars. As far as price difference between Petrol and Diesel variant cars is considered, the extra cost can be nullified through breakeven within 1-1.5 years. With the new norms, pricing will get increased considerably. So, there might be a lot of problems in order to achieve breakeven. Thus, there will be  a drastic price difference between Petrol and Diesel cars. So, with the newly implemented Bharat Stage VI Norms, the demand of diesel cars might get hampered due to the affordability issue.
  • Since, NDA government (2014-2019) had deregulated the Petrol and Diesel cars prices before BS VI Norms, the Auto players are going to loose the advantage of  deregulation of prices between petrol and diesel cars.
  • As a consequence, most of the auto companies are planning to shift their focus merely on Petrol, CNG, Electric and Hybrid cars instead of diesel cars. For the same reason, Maruti is now focusing on developing the Maruti-Toyota partnership.
  • Therefore, due to strict emission norms, automobile industry can go through a chain in coming 12-24 months. Mahindra & Mahindra (M&M) is having a big segment in Diesel vehicles. So it will impact on the M&M accordingly.

3.Rising Fuel Prices :

  • Due to the recent conflicts between Iran and US, US has said to put the sanction on the country who will trade with Iran. As a result, whatever 15-20% of oil supply India was getting from Iran, is tried to be disrupted by US. For the same reason, the crude oil prices move from $86 to $50 and then again raised to above $70.
  • Also the deregulation will impact on the petrol as well as diesel prices and thus, will be a demand damper for cars. Thus, the sales of Auto companies are very low in the recent Q4 results FY2019.
  • For Example, In case of Maruti Suzuki, there is a decline of 19% year-on-year in Q4 FY2019 as compared to Q4 FY2018.Though the base effect of 2018 is greater than 2019, still a sluggish growth is expected in FY2019. Since Auto Industry is cyclical in nature, the sector will still remain in the same degrowth phase in next 3-4 quarters.
  • But as such there no issue in the Automobile Industry in long-term. It is the time, when you get an opportunity to build your portfolio. Some Auto stocks are structurally very strong.  For Example, Maruti Suzuki, Tata Motors Ltd, Eicher Motors are currently trading at 35% down compared to their 52 week high share prices.  While Ashok Leyland is at 50% down from its 52 week high. Thus, this cyclical downturn will remain for next 3-4 quarters in the Auto Industry.

4.Higher Insurance Cost :

  • For the newly sold vehicles, Insurance of 3 years is made compulsory now.
  • 1st year insurance : Own damage + Third Party
  • 2nd year insurance : At Least Third Party
  • 3rd year insurance  : Third Party
  • For Example, For a Car pricing Rs.11 Lakh, the premium is come out to be Rs.43,000. Thus, premium is almost 4% of car’s price made compulsory. When (Own Damage + Third Party) is covered for 3 years, then premium will be Rs.79,000, which is around 7.5%-8% of price.
  • Thus, due to higher cost of Insurance, the on road price of the car gets increased considerably.

5.Weaker Consumer Segment :

  • It is divided to 2 terms : Urban and Rural

For passenger vehicles,

  • Rural Segment : 2008 = 4% , 2019 = 30-40%
  • Urban Segment : 2008 = 96%, 2019 = 60-70%
  • In order to increase the number of cars in a single house in India, the Infrastructure is not developed yet fully. So with the future development in the Infrastructure, it might become a demand booster for Auto Sector. Also, due to considerable presence of Public transport in India, the demand for Automobiles is not as significantly high as expected. Still aspirational demand will be high in next years.
  • In Rural allocation, as far as Monsoons are considered, 2017-18 and 2018-19 years were not as good as expected. Therefore it hampered the  disposable income of the people in rural segment. As we have mentioned above, rural segment is a significantly big contributor to Auto sector.
  • And in Urban segment, consumption patterns are getting changed in the recent years. Rather than buying a new vehicle, people are opting for renting where players like Ola, Uber etc came into the picture.
  • So the Due to the overall weaker consumer segment, Auto sector was impacted badly in the last 3-4 years.

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