हिंदी – Auto sector Crisis . Time to invest ?

हिंदी – Auto sector Crisis . Time to invest ?

Hello investors , my name is Sagar and in this video we’ll talk about the auto sector . Firstly, I will talk about the main reasons of the slowdown
later , we will talk about the measures announced by the Government
and lastly we will talk about valuations and if I will invest in this sector right now
If you would have invested in the auto sector some years back , you would have ended up with great returns
but if you read about the auto sector right now , the only thing you will see is slowdown , slowdown and slowdown. So let’s understand the main reasons behind this slowdown.
This slowdown started 3 – 4 quarters ago but initially the numbers weren’t so bad
it started getting worse this quarter and the last time we saw such numbers was in 2001
auto manufacturers have started controlling their production as the sales aren’t going as they predicted
because if they keep producing cars and the customers won’t buy them , they will end up with inventory issues
in order to manage their inventory, they have started decreasing their production , firing many workers and shutting down their plants for some days
So is this slowdown something new ? The answer is no. We have seen something like this in 2009 and 2014 as well but it wasn’t as bad as now
There is one big reason. One of the main reasons of this slowdown is cost increase and this wasn’t the issue in 2009 and 2014
in many cases , the price of a car has gone up by 10 – 12 % . Let’s understand the main reasons behind this cost increase .
Overall , insurance cost has increase for the customer and in some cases , it is up by thousands of rupees
Secondly, road tax has also increase in many states . In some cases , it has increased from 1 % to 5 %. Unfortunately , all these factors have coincided at the same time.
The third factor is safety norms. ABS ( anti – lock breaking system ) and airbags are some of them.
Basically , car manufacturers will have to make some changes and this will cost them money. They pass this directly to the customer.
The end result is an increase in the price of the car for the customer
And the main reason is BS 6 emission norms. Currently , we are following BS 4 emission norms but the Government has decided to follow BR 6 emission norms from the next year
After April 2020 , every car manufacturer has to follow BS 6 emission norms for their new models as this will help us control the pollution cars create.
but this means that the price of a new car will also be higher as the cost of producing will increase and this will also be passed to the customer
These are the main reasons behind the cost increase of a car by 10 – 12 %
There is one more thing to keep in mind. The majority of people in India finance their cars ( more than 50 % )
And one of the main players are NBFC’s . You might have heard about NBFC crisis and what happened.
After IL&FS , many NBFC’s weren’t able to raise money and they were facing many difficulties but why is this so important ?
That is because NBFC’s don’t have any money . First they have to borrow money in order to lend it to their clients
but if they aren’t able to borrow money in the first place , they won’t be able to give loans to their customers. This was another major issue.
Now that we know the main reasons , let’s talk about the measures announced by the Finance Minister in order to boost this sector
In the previous slowdowns , the Government decided to reduce the GST in order to help this sector and many people were expecting the same in the current situation
unfortunately , the didn’t make any changes and people were disappointed but let’s talk about the new measures
Many customers were confused because they knew that in 2020 we will start following BS 6 emission norms
Currently we are following BS 4 emission norms , so does that mean that if I buy a car now ( BS 4 ) , I won’t be able to use after 2020 ?
That’s the why the first point was to clear this confusion . They mentioned that any BS 4 car bought until March 2020 will be valid until it’s registration period
The second point was regarding the registration fees. They pushed back the proposal of a one time registration fees increase until June 2020 .
The third point is regarding depreciation. This number was 15 % but what does it actually mean ?
When we buy a new car , once it’s out of the showroom , it loses it’s value and this is known as depreciation.
In this case , you were allowed 15 % but they have increased this to 30 % for all the vehicles purchased till March 2020 although this mainly helps corporates
The ban on the purchase of new vehicles for government departments will been lifted , in order to support the sector.
and the last point was the most important for me , which was scrapping policy. Why is this so important?
That’s because this policy would help us get old cars off the road and help people buy new cars but in this case, they didn’t give any updates because they said that we don’t have the infrastructure to do that
and I didn’t like this much because it would help us clear old cars. This has been done in other places and has worked out really well.
This was regarding the auto sector but I also mentioned that the majority of people finance their cars so we need to understand the changes made in this sector
Government will provide extra liquidity to the banks, which will support NBFC’s as well
Secondly , they mentioned that the interest pain on vehicle and home loans will also decrease
Now , let’s talk about valuations and there are many important points
We all know that this month is going to be full of festivals and it’s very important for this sector as customers can get great discounts
but as I mentioned before , we will be switching from BS 4 to BS 6 emission norms and that means that these car companies will have to clear their older models ( BS 4 )
Because after April 2020 , they can only sell BS 6 models . So , they will have to sell their older models until then and that means they will be offering very big discounts .
this will directly affect their profitability and margins as they will be offering big discounts
Many companies such as Maruti Suzuki , already have BS 6 models
so in the next quarter , while the sales may be fine , their profits won’t be so good
and the second point is Electric Vehicles. The Government wants people to buy Electric vehicles as they are environment friendly
but currently , the majority of the car companies have Internal Combustion Engines. So , we will see a gradual shift towards EV vehicles
but people believe that all of a sudden , everyone will start using EV vehicles and that’s not true . As the Prime Minister mentioned that ICE and EV vehicles can coexist
but there will be a big shift in the new models where car companies will be following BS 6 emission norms and launching many new models
So will I invest in this company now ? At the moment , I don’t feel it’s the right time to invest
We might see good numbers in some months but the profits won’t be so good for some time as they will be offering many discounts to clear their inventories
and I don’t think the Stimulus package will really help in the long term. We do know that the sector will recover but it will take some time.
That’s why I won’t invest now
I will be tracking the sector and how it’s changing
and after some time , I might invest
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41 Replies to “हिंदी – Auto sector Crisis . Time to invest ?”

  1. Very nice video Sagar. Somewhere I read that Chrysler used to mention a statistic called pent-up demand in their reports that used to gauge the difference between actual vehicles sold and the trend (during US autosector slowdown during 1980s). Can we apply the same for the Indian autosector ? Thanks

  2. Also if you could throw some light on the book outsiders and if you can share similar type of CEOs wrt Indian markets who are great capital allocators

  3. 4:30 liquidity is not a big issue…actually people are not coming to take loans…because either their income is reduced,or jobs lost…or those who have fixed income their other day to day expenses have increased…..in short people are not confident of their future income or savings

  4. Nissan fired close to 12 k employees worldwide due to slow down in sales. In Indian it’s due to low wages,Govt policies and easy availability of car in tier 1 cities.

  5. ye to aap ceo ke speeches mese bol rahe ho ….Sabsa bada issue hai design bhangaar design mini segment me alto aur suvs me m&m vagera ullu bana rahe hai
    Aap dekho s cross ,brezza ki slow down me bhi positive growth hai

  6. Hi Sagar, mein kafi videos aapka dekha hoon, hamesha ek doubt rehti hai…..Aap aise achi tarah explain karte hai,ek acha thought process hai aapka…aap yeh sab information kahan se lete hai.If you don't mind aap apni research process ek example ke saath show karenge ek video ke saath?
    Ty for all the videos put up and all the videos yet to come !!!!

  7. Nice analysis.
    Shall we also consider Uber, Ola impact while analyzing auto and driverless cars in future?
    Also, At present why should anyone buy petrol car. Would you buy?
    Mahindra e2o is @8 lakh. Tata Tiago EV @12 lakh. Its much much cheaper than 5-6 lakh petrol cars. And these are first models, tech will improve if we can wait for couple of years.
    Tesla is coming for rich customers.
    Charging time and range are problems in low models. But one can use taxi/cab for traveling long distance once in a while.
    If we look in long future. It will be expensive to keep a car than to book an Ola cab daily.
    Owned cars have many expenses. A major one being parking space in house and rent wherever we go.

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