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| INDUSTRY Cost savings fuel auto companies' Q1 profits Multiple variants keep auto sales up Now, high volume growth for auto firms Ashok Leyland sees 35% fall in July sales Tata to supply steel for Toyota's small car INTERVIEWS/FEATURES Ford plans small car debut in '10 COMMERCIAL VEHICLES Did norms take backseat in haste to buy low-floor buses? CONSTRUCTION & AGRI MACHINERY 2/3 WHEELERS Magna Seating, Krishna group setting up plant near Pune Dassault Systemes plans virtual auto dealership simulators in India | ALLIED INDUSTRIES FINANCE & INSURANCE Canara Bank cuts auto loan rates OIL, LUBRICANTS & ALTERNATIVE FUELS Oil prices near $72 despite robust supplies INTERNATIONAL NEWS GM to speed car launches, target market share gain Honda car business to return to profit in H2 Toyota to build affordable sports car: Akio Toyoda ECONOMY & FINANCE Sensex gains nearly 73 points in volatile session New inflation data series to downgrade food inflation
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| AUTO MAJORS DRAG SALES GROWTH INTO POSITIVE TERRITORY Chanchal Pal Chauhan & Paramita Chatterjee The Economic Times (Web & Print Edition)
New Delhi: The top dogs of the automotive pack dragged the industrys sales growth into positive territory between April and June, pulling the weigh for the rest lagging behind. in the first quarter of the fiscal would have fallen by 1.2% from a year ago and that of bikes by 4.8%. Copyright 2008, Bennett, Coleman & Co. Ltd. All Rights Reserved"
COST SAVINGS FUEL AUTO COMPANIES' Q1 PROFITS B G Shirsat Business Standard (Web & Print Edition)
Mumbai: Riding on cuts in excise duty and interest rates, plus savings in raw material (RM) costs, 14 auto makers reported healthy growth in operating margins and profit in the first quarter ended June 30. Overall, net profit rose by 66 per cent on a modest 7 per cent growth in net sales the comparison is with the same period a year earlier but operating margins increased by 303 basis points (bps) to 9.64 per cent, due to decline in cost of production and higher realisation.
The RM cost to net sales ratio declined to 67.8 per cent as against 73.1 per cent, while the excise duty to sales ratio fell to 8.6 per cent from 12.8 per cent at the same time a year before. The RM cost saving is estimated to be around 47 per cent of aggregate net profit or Rs 1,100 crore, assuming the RM/sales ratio is the same. Auto analysts expect raw material prices to go up in the second half of 2009-10 and hence this cushion may not available for a longer period.
Two-wheelers firms did extremely well, recording a significant jump in sales, profits and operating margins (see table). Cars and utility vehicle makers performed well, too, on the back of higher export realisation and decline in cost of production. The commercial vehicle segment suffered, with Ashok Leyland and Tata Motors reporting a decline in sales.
Hero Honda beat the street, with a 88.6 per cent rise in net profit, thanks to a 488 bps decline in the RM costs to sales ratio and a Rs 24 crore saving from a lower tax rate. The company has maintained its volume expectation of 4.1 million units, but auto analysts at CLSA expect the company to sell close to 4.25 million units for the year.
Hero Honda expects higher commodity prices to start impacting raw material costs in the second half. The rise in operating margins for the first quarter was driven by soft commodity prices, but the benefit was partially offset by high advertisement expenses, due to the IPL tournament sponsorships and a wage hike. These expenses could return to normal, leading to a further margin expansion.
Bajaj Auto also had a 88.6 per cent rise in net profit, as the operating margins were up by almost 1,000 basis points, to 13.15 per cent. The better export realisations, higher volumes and a better product mix did the trick. Competition in the motorcycle segment is heating up, with Bajaj entering the executive segment with a 100cc bike, followed by Hero Honda later in the year.
Mahindra & Mahindra (M&M) reported a 28.7 per cent growth in sales, mainly on account of a 44.1 per cent rise in tractor volumes due to inclusion of units of Punjab Tractor, which it acquired. The net realisation per vehicle, according to the analyst at Prabhudas Lilladher, was higher by 4.9 per cent. The company reported net profit growth of 151.6 per cent.
Maruti Suzuki exports zoomed 134.7 per cent, which resulted in a 33.9 per cent rise in net sales. The analyst at HDFC Securities says realisations have been higher due to higher sales of the new A2 model cars in the export and domestic markets. Realisations in exports improved due to a strong Euro and the incentives to scrap older cars offered by governments in Europe.
Tata Motors adjusted net profit of Rs 196 crore has been well ahead of market expectations. The reported net profit of Rs 513 crore is adjusted for other income of Rs 318 crore from sales of investment. The company benefited from a lower effective excise duty, as production from Uttarakhand increased. Its operating margins in the quarter increased due to higher-than expected reduction in commodity costs, cost reduction measures and an improved product mix.
Ashok Leyland posted poor results among auto companies, as sales slipped 51.7 per cent and net profit dipped 84.6 per cent. The margins of Ashok Leyland declined during the quarter, as its costs increased by 5 per cent, quarter on quarter, due to liquidation of high-cost inventory. The company continues to be adversely affected owing to its concentration of sales in southern India.
If one goes by sales numbers for the month of July, the sector is expected to do well. The two-wheeler segment performed strongly in July, with the top three companies registering a growth of 17 per cent. Hero Honda outperformed with a 30 per cent growth, while TVS Motors and Bajaj Auto reported discouraging numbers.
Among car makers, Maruti Suzuki did well with a 27.6 per cent rise in domestic sales, while Tata Motors commercial vehicle division posted growth after nearly a year. http://www.business-standard.com/india/news/cost-savings-fuel-auto-companies/-q1-profits/366123/
MULTIPLE VARIANTS KEEP AUTO SALES UP Shally Seth mint (Web & Print Edition)
Mumbai: The global automobile market has been governed by a simple rule ever since General Motors Corp.s legendary chairman Alfred P. Sloan made planned obsolescence central to his strategy in the 1930s: Old models get replaced by new models.
This time-honoured rule is being challenged in the Indian car and two-wheeler markets, as old and new models share market space in a form of uneasy co-existence. So, even as Maruti Suzuki India Ltd and Hero Honda Motors Ltd, market leaders in car and two-wheeler segments, respectively, roll out swankier products, they have not retired old workhorses such as the Maruti 800 car and the Splendor motorcycle.
On the contrary, Maruti Suzukis portfolio currently comprises 13 car models with at least 40 variants, while Hero Honda has 10 models with 25 variants and plans to introduce nine additional new products in the current financial year ending March 2010.
Executives at both firms said given the variety of customer needs, it pays to allow multiple products to coexist. Other car makers such as Hyundai Motor India Ltd and Tata Motors Ltd, Indias second and third largest car makers by sales, have also followed a similar policy. While Hyundai Motor has kept its original offering, the Santro, in showrooms, Tata Motors continues to sell the Indica, a compact car, which at the time of its launch was touted as the first car to be designed and made in India.
Both cars have been offered in various variants over the 11 years since they were launched, even as the car makers have launched sedans and multi-purpose vehicles alongside.
Though a products life cycle depends on many factors such as a firms strategy, geography and consumer behaviour, it has shrunk to five-seven years from seven to 10 years a decade ago in developed markets of the world, said Pankaj Chadha, director, automotive practice, at consulting firm Ernst and Young.
However, even in developed markets, auto makers have retained models over decades with improved variants, such as Ford Motor Co.s Mustang, Toyota Motor Co.s Corolla, Volkswagen AGs Beetle and General Motors Camaro.
In India, the 25-year-old Maruti 800 and the 9-year-old Alto are still selling alongside newer products such as the Swift, SX4, A-Star and Ritz. Similarly, Hero Hondas Splendor coexists with the Hunk, Achiever and Glamour, all sleeker, more powerful motorcycles.
Unlike the mature auto markets of the world, there is still a lot of gap between the steps of the product ladder in India that have to be filled in. Auto makers are trying to address this, said R. Venkatraman, partner and vice-president at global consulting firm AT Kearney Ltd, adding that an important factor is that India is one of the worlds most price-sensitive markets.
Surjit Arora, an analyst at Prabhudas Lilladher Pvt. Ltd said the need to have a variety of models with minor differentiators is driven by the need to retain customers.
It helps that as investments are recovered on older models, firms get the flexibility to price them competitively, creating a significant price gap between the old and new, said Venkataraman, adding that the trend will likely continue for another five years, when auto makers start generating higher volumes.
For Hero Honda, which has kept its at least a decade-old Splendor and Passion brands alive, the seven-variant Splendor still sells a million units annually, just under a third of the 3.42 million motorcycles sold every year.
Anil Dua, vice-president of sales and marketing at Hero Honda, said the underlying principle behind the strategy has been One for everyone, thus also preventing consumers from tiring of older brands. It requires a clearly differentiated positioning, well-defined target customers, backed by a carefully planned communication to make it a success, he added.
Similarly, at Maruti Suzuki, the Alto, introduced in 2000, sells 20,000 units a month on average, accounting for almost 50% of the companys sales in the compact car segment. It is not important to always discontinue old models when launching the new ones, as the idea is to expand the segment in which the product has been positioned, said I.V. Rao, managing executive officer, engineering, Maruti Suzuki. It depends on the product strategy and the response the old model has been getting from the market. The company has replaced its Baleno, Esteem and Zen models with the SX4, Swift Dzire and Zen Estilo, respectively.
The multi-product trend, however, is seen most in companies that depend on volumes and pricing, unlike premium car makers such as Honda Siel Cars India Ltd or Toyota Kirloskar Motor Pvt. Ltd that use technology as a differentiator.
In February 2005, Toyota Kirloskar phased out the multi-purpose vehicle Qualis at a time when it was averaging 4,000-4,500 units a month and replaced it with the Innova.
It was difficult for us to justify both the models, it doesnt go with our strategy, said Sandeep Singh, deputy managing director, marketing, Toyota Kirloskar.
However, the multi-variant strategy comes with its own pitfalls. The complexity of the whole operation increases when you have more and more variants, said Venkataraman. The definite cost of complexities that arise out of enlarging product portfolio could be anywhere between 2% to 5% of the base cost.
Arora of Prabhudas Lilladher said the only possible fallout of this strategy is cannibalization. The Swift and the Ritz, for instance, have been cutting into each others sales, he said.
Marutis Rao conceded the point, saying that given the overlap in the compact car segment, its a challenging task to convince customers on choosing one over the other.
Nonetheless, Maruti Suzuki reported a spike of 21% in July sales to 48,115 units in that segment.
To counter the cost effect, auto makers have been working on reducing complexities on two levels: using a smaller number of variants at the component level for different models and at the design level.
Fewer component variants reduce supply-chain complexity for the car maker and also give suppliers larger volumes. For example, Marutis Manesar plant that produces the A-Star, Swift, Dzire and SX4 is capable of rolling out all these models off the same assembly line.
Instead of redesigning new components each time a new car is launched, companies now keep a database of components that can be used in a new product. Its also becoming important from the aspect of servicing and sales, because one otherwise will end up supplying 100 different versions of a particular part, said Venkatraman. http://www.livemint.com/2009/08/06004626/Multiple-variants-keep-auto-sa.html?pg=2
NOW, HIGH VOLUME GROWTH FOR AUTO FIRMS Mint (Web & Print Edition)
Mobis Philipose Auto companies reported the biggest earnings surprise this results season, beating street estimates by a wide margin. All frontline stocks in this sector such as Maruti Suzuki India Ltd, Hero Honda Motors Ltd, Tata Motors Ltd and Mahindra and Mahindra Ltd (M&M) posted better-than-expected profit for the three months ended June.
Savings on raw material costs as the commodity price cycle bottomed out and higher price realizations helped achieve the best results in at least four quarters.
If there was any quibble about this performance, it was only that the majority of the gains came from the cost side, while revenues grew in single digits. But this may soon be a thing of the past, if these companies July sales numbers are an indication. Maruti, M&M and Hero Honda grew their sales by about 30%, while Tata Motorss 17% increase in total volumes was well above expectations. The increase was not just restricted to passenger vehicles. Tractor sales grew strongly in what is usually not the growth season for this segment and trucks posted an increase for the first time in a year.
To be sure, lower sales in the year ago period is one of the key reasons for this percentage increase. But analysts say the so-called base effect doesnt explain the full extent of the increase. The positive turn in consumer sentiment in recent months seems to be main factor driving the growth in auto sales. Auto manufacturers have capitalized on the situation with a number of new vehicle launches. For instance, M&Ms Xylo has a six-week waiting period. Sales should continue to grow at a decent pace in the near term, with the festival season kicking off on Wednesday with Hindu festival Raksha Bandhan. Traditionally, this period has seen high spikes, especially in two-wheeler demand.
Needless to say, the uncertainty related to the weak monsoon remains. In a worst-case scenario, this could derail growth, since rural demand has been the key to the robust performances of companies such as Hero Honda and M&M in the past year. The two companies sell at least half their vehicles to rural consumers. But thanks to rural employment programmes such as the National Rural Employment Guarantee Scheme, analysts say that rural income is relatively less dependent on agriculture, and could provide a cushion as far as rural demand is concerned. http://www.livemint.com/2009/08/05214938/Now-high-volume-growth-for-au.html
ASHOK LEYLAND SEES 35% FALL IN JULY SALES The Hindu Business Line (Web & Print Edition)
Chennai: Ashok Leyland witnessed a 35 per cent drop in its July domestic sales to 3,560 vehicles from the 5,502 units sold in the same month last year. However, the sales grew 2 per cent in the month sequentially.
While passenger vehicles witnessed a sharp decline of 48 per cent to 974 units (1,907), the drop was moderate at 28 per cent in the goods segment to 2,516 units (3,507 units). Exports fell 28 per cent to 505 units. However, they grew 3 per cent compared with June despatches.
Multi-axles Mr Rajiv Saharia, Executive Director, said the growth for the company came from the general market especially from the multi-axle vehicles. In general, we could see the sentiment improving, he said.
Since the northern market, where Ashok Leyland is not very strong, is expanding faster, the companys growth is not reflective of the industrys. The market is seeing activity this quarter; we could see sales picking up in all the segments except tippers. We hope the tippers will also pick up from September, he added. Besides, the sales happening through JNNURM will also get reflected in the second quarter. http://www.thehindubusinessline.com/2009/08/06/stories/2009080650110300.htm
TATA TO SUPPLY STEEL FOR TOYOTA'S SMALL CAR Subhash Narayan The Economic Times (Web Edition)
Jamshedpur: Tata Steel is in talks with Toyota to supply high-grade steel skin panels for the car maker's proposed small car project. The Toyota car, slated for launch late next year, may use steel from the company for its outer body cover, an official in the company said. Copyright 2008, Bennett, Coleman & Co. Ltd. All Rights Reserved" http://economictimes.indiatimes.com/News/News-By-Industry/Indl-Goods-Svs/Tata-to-supply-steel-for-Toyotas-small-car/articleshow/4861311.cms
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| PROFIT MARGIN FACES PRESSURE, SAYS MARUTI MD
The Times of India (Web & Print Edition)
New Delhi: Market leader Maruti Suzuki India has said that rising competition and continuing investments into business will keep profit margins under pressure and may remain in single digits. Copyright 2008, Bennett, Coleman & Co. Ltd. All Rights Reserved"
FORD PLANS SMALL CAR DEBUT IN '10 Lijee Philip & Hemamalini Venkatraman The Economic Times (Web & Print Edition)
Mumbai | Chennai: Auto major Ford India will launch a small car sometime in early 2010, in a bid to step up its presence in the country. The company showcased the prototype, codenamed B517, recently at a dealers meet in Chennai. http://economictimes.indiatimes.com/News/News-By-Industry/Auto/Ford-plans-small-car-debut-in-10/articleshow/4861228.cms
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| COMMERCIAL VEHICLES Go To Top Yogima Seth The Financial Express (Web & Print Edition), The Indian Express (Web & Print Edition)
New Delhi: Truck sales, one of the most reliable leading indicators of economic activity, have moved back into positive territory after four consecutive quarters of double-digit declines.
Truck sales in the 5-49 tonne segment, jumped in July by 8.33% to 16,265 units, compared with 15,014 units in the same month last year, according to data compiled by Indian Foundation of Transport Research & Training, a Delhi-based sector tracker. The July numbers also show an improvement over the June 2009 figures for medium & heavy vehicles at 15,659 units, which was a decline of 31% over last year.
While the share price movement of truck manufacturers underscored the trend, there were voices of caution. Dilip Chenoy, director general, Society of Indian Automobile Manufacturers (Siam), said, The growth in July is statistical as the segment had registered a decline of nearly 40% in July last year, which resulted in a significantly lower base.
Siam is yet to come out with commercial vehicle sales numbers for July. But provisional data shows that the rate of decline has come down significantly from over 50% decline recorded over the last six months to 9.7% in July in the heavy commercial vehicle category that includes trucks, tippers and trailers in the 12 to 49-tonne category.
The improvement mirrors the changes taking place in business confidence index released by the Ncaer along with the RBI monetary policy in July and the improvements noticed in the monthly index of industrial production.
There has been a significant improvement. Going forward, the segment is likely to receive a further boost from the large allocation for development of infrastructure in Budget 2009-10, said the spokesperson of VE Commercial Vehicles, a joint venture between Eicher Motors and Volvo.
The shares of Indias largest truck maker by sales, Tata Motors, rose 1.49% on Wednesday at the NSE on reports that total commercial vehicle sales (including trucks and buses) have risen 18% to 48,054 units in July 2009 over that of July 2008. Tata Motors American depository receipts too have ended 7.20% higher at $11.31 on the New York Stock Exchange on Monday.
The company registered an overall growth of 27% in commercial vehicle sales at 28,408 units against 22,381 units in July 2008. Sales of big trucks, known as M&HCVs has turned positive after almost a year and are at their highest since September 2008a growth rate of 6%, year on year. http://www.financialexpress.com/news/july-truck-sales-see-first-rise-after-year-of-decline/498542/
DID NORMS TAKE BACKSEAT IN HASTE TO BUY LOW-FLOOR BUSES? Abantika Ghosh The Times of India (Delhi Print Edition)
New Delhi: Are the 625 low-floor buses currently running in Delhi not as per the technical specifications of DTC? There have been rumours in the transport department for a while but senior officials have been in denial mode. Transport minister Arvinder Singh Lovely, however, may have restarted the debate by admitting that the delay in supply of low-floor buses was indeed because prototypes were yet to be approved. They (Tata Motors and Ashok Leyland) have some buses ready but they cannot come before the prototype is approved by Automobile Research Association of India (ARAI), Lovely told Times City. Asked why the approval process was happening 19 months after the last low-floor bus came in, Lovely said that procedures have now been revised to approve every lot. We are just being extra careful, was how he explained it. Transport department sources however say that in a hurry to get the swanky buses on the road before the Assembly elections the 625 buses came in between November 2007 and March 2008 the companies were hurried into starting early delivery and some relaxation of specifications was allowed. That obviously cannot happen now hence the delay, explained an official. He however conceded that the official reason for the delay an order of 15,000 buses from the central government for JNNURM too is a factor but not the only one. The prototype clearance has also been necessitated by the fire in one Tata bus in March.. Meanwhile, with awarding of the first bus cluster caught in the subsidy wrangle and manufacturers of low floor buses missing deadline after deadline, the city governments grand plans of a bus system revamp are looking less plausible every day. Chief secretary Rakesh Mehta admits that Tata Motors and Ashok Leyland have badly let us down and the government is clueless as to when low floor buses will start coming in. They had said August-September but that does not seem to be happening. All they are telling us is that they are augmenting capacity. We were pressing for supply at twice the agreed rate and here they have not even adhered to the original schedule, an upset Mehta said. The situation is such that the original target of getting 10,000 low floor buses by 2012 does not look realistic any more. We will probably be able to manage just about 7,000-8,000. Left with no option we have turned to semi-low floor buses, Mehta says. Transport department officials say the figure may even be less than that. The governments hands, says Lovely, are further tied because these two are the only companies manufacturing these buses at these rates. We are trying very hard to diversify the procurement. In fact I have just asked the department to buy some of the Mercedes buses and try them out. Lets see if that works. We could even have gone with Volvo if they were a little flexible but their price of Rs 85 lakh per bus is way too high for us, Lovely said. Mehta added that the government is seriously looking at a bus fare hike to resolve the subsidy problem and take the bus cluster process forward. In the present form of the plan the government will need to give Rs 85 crore subsidy to the company running the buses something that the finance department has put its foot down on. Copyright 2009, Bennett, Coleman & Co. Ltd. All Rights Reserved"
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| CONSTRUCTION & AGRI MACHINERY Go To Top Neha Rishi Daily News & Analysis
Mumbai: Indian tractor makers are looking at Africa to boost export revenues after the economic crisis pulled down sales substantially in the US, their biggest export destination. Mahindra & Mahindra, India's top tractor maker with a 41% market share, is expecting the African continent to contribute almost a third to its total tractor exports during the current fiscal.
M&M's exports during FY09 stood at 7,013 units, out of which 1,600 were to Africa.
Anjani Kumar Choudhari, president (farm equipment sector), M&M, said, "Until five years ago, our exports to Africa were only about 150 units annually and it is a little less than 2,000 units. I will be very disappointed if by the next fiscal the African market does not grow by 10-20%."
During the June quarter, M&M exported 1,420 tractors, a decline of almost 40% over the comparable period last fiscal.
M&M expects the US market, where its tractors are mainly used for hobby farming, to revive by the third quarter of this fiscal.
M&M's major tractor markets are US, Australia, China and Africa. Similarly, Tractor and Farm Equipment Ltd (TAFE), second-biggest domestic tractor firm with a 21% market share, is focusing on developing countries to boost its exports.
TAFE is focusing on Africa to offset lower sales in the domestic market. The company refused to divulge any numbers.
Choudhari of M&M said, "In 2005 we realised that India and China, the two major markets for tractors, will eventually mature, and then the potential will be in Africa and the Middle East. In order to strengthen our position in these markets, we have partnered with the government to set up assembly plants in Gambia and Chad and also extend lines of credit to these countries. This venture was a success in Turkey where we have the largest assembly plant."
An analyst from a leading research firm said, "Farms sizes in Australia and the US are large for which Indian tractors are not suitable. But in case of Africa, which is densely populated, farm holdings are small, hence it is a viable market for us. Also, the mechanisation trend in Africa is much lower than India, so the scope for improvement in mechanisation is vast, which the tractor manufacturers are trying to cash in on."
Also, the governments there are heavily focusing on agriculture production as the continent is not self-sufficient in foodgrain production yet, the analyst said. M&M South Africa, the wholly owned subsidiary of M&M, has also started importing tractors from India, which will be sold to neighbouring countries there. http://www.dnaindia.com/money/report_africa-a-bright-continent-for-tractor-cos_1280002
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| COMPONENTS Go To Top The Pioneer
Ahmedabad: The south Gujarat town of Umargaon would soon attract investments from South Korean companies for manufacturing a range of products from auto-parts to semi-conductors. http://www.dailypioneer.com/193888/Korean-investment-in-south-Gujarat-soon.html
M&M GOES ON TECHNOLOGY DRIVE WITH SUPPLIERS Murali Gopalan The Hindu Business Line
Mumbai: Mahindra & Mahindra has kicked off an initiative with its suppliers which will see the two collaborate closely in critical areas relating to technology and innovation. Dr Pawan Goenka, President, Automotive Sector, told BusinessLine that it was imperative in a rapidly changing global environment where technology holds the key to growth for automobile companies.
Both M&M and its suppliers need to innovate together since neither of us has the capacity to do this individually, he said.
The company has also made an open offer that it will be ready to double-up as a test lab for suppliers if they have no takers for some of their more recent technology initiatives.
Like other Indian automobile companies, M&M also holds supplier conferences each year but with a difference. We just do not stop with a presentation and an evening get-together before saying goodbye. We ensure that there are individual sessions with each supplier, lasting 45 minutes, over four days to discuss each of their business with M&M, Dr Goenka said.
From the automakers side, two teams personnel and strategic carry out this exercise. During these meetings, the supplier concerned updates the company on what is new and the things he can do with us while we tell them our requirements and so on. All in all, there are 60 suppliers within the fold.
With this in mind, M&M has gone a step further and created a supplier advisory council (SAC), comprising a handful of representatives, who meet four to six times a year. The idea is for us to coordinate more, work better and create a win-win situation for both parties. We ask suppliers to give us the kind of technical projects that they are interested in doing with us. We have already selected a dozen of these which we are working on with them, he said.
In addition, the company has assigned a single point contact for each supplier so that it becomes easy for them to sort issues quickly. This contact point is, in some ways, a mentor for the supplier concerned who will look into problems in R&D, purchase, accounts, issues relating to payments, developments slowing down and so on. He could also be handy when it comes to business possibly taken away from the supplier (he is representing) and may even fight for the cause.
The exercise is paying-off and M&M has already got some vital inputs from suppliers on what it must do to improve its business. Dr Goenka is also clear that even while the company has had a heady run in sales, it is imperative to remain humble whatever happens.
Even if we were to achieve growth levels of ten per cent or more, we need to understand that we exist only because of three sets of people: the suppliers, dealers and customers , he said. http://www.thehindubusinessline.com/2009/08/06/stories/2009080651140200.htm
MAGNA SEATING, KRISHNA GROUP SETTING UP PLANT NEAR PUNE The Hindu Business Line
Mumbai: Magna Seating, part of the North America-headquartered Magna International, has signalled its India debut through a joint-venture with the Krishna group. The two have teamed up in a 50:50 joint venture to make complete seating systems from a new plant at Chakan near Pune.
Auto players MSKH Seating Systems, as the new entity will be called, hopes to kick off production within a year. The Pune region houses major automotive players such as Tata Motors at Pimpri, Tata-Fiat at Ranjangaon and General Motors India at Talegaon. Chakan itself is home to Volkswagen, Mahindra International and Bajaj Auto for the ultra-low cost car project being planned with Renault and Nissan.
A press statement issued here says that while Magna Seating will bring in cutting-edge technology and engineering support, Krishna, one of the largest complete seat suppliers in India, will provide competitive manufacturing strength. Magna Seating will also bring exclusive support to the joint venture.
The two companies could even set up plants in other parts of the country where there is a business opportunity. At present, Chennai and Gurgaon are seen as the fastest growth regions and it remains to be seen if MSKH Seating Systems considers facilities there. Aligning ourselves with the Krishna group allows us to engage automakers in the Pune region with a capable partner, said Mr Deepak Nagaraja, Vice-President, Asia-Pacific Operations, Magna Seating.
Latest tech and competitive price Mr Ashok Kapur, Chairman, Krishna group, said: By combining resources, we will be able to offer Pune automakers the latest in seating technologies at a competitive price. The groups product range includes automotive interiors components and metal products. It has 19 plants across New Delhi and Pune. http://www.thehindubusinessline.com/2009/08/06/stories/2009080651150200.htm
DASSAULT SYSTEMES PLANS VIRTUAL AUTO DEALERSHIP SIMULATORS IN INDIA K Rajani Kanth Business Standard
Hyderabad: Dassault Systemes, a Paris-based provider of lifecycle product management solutions, is working towards launching virtual automotive dealership simulators in the Indian market shortly, according to its India president, Andy Kalambi.
As in the real automotive sales sites, where a prospective car owner walks into a showroom, selects his vehicle and gets a sense of the interiors and exteriors before actually buying it, the virtual dealership enables him to do all this, too, including opening the doors to have a glance at the cars features, but through a simulator.
With the current economic slowdown, automobile manufacturers are finding it difficult to manage costs and are looking at slimming their dealership networks. The virtual dealership simulators will provide the original equipment manufacturers (OEMs) an opportunity to save resources, besides managing their inventory in a much more cost-effective manner, Kalambi said.
Kalambi was speaking to Business Standard on the sidelines of the sixth leadership series on manufacturing excellence MANEXE 2009 organised by the Confederation of Indian Industry (CII) in Hyderabad on Wednesday.
We recently signed large deals in Australia and China for deploying virtual dealership simulators to Honda and Mercedes-Benz, respectively. We are currently in talks with all the major two-wheeler and four-wheeler makers in India for implementing the same, he said, while declining to spell out the time line for closing the deals.
The over $2-billion company, which currently has six offices across the country and a development centre each at Pune and Bangalore, employing about 1,200 professionals, is setting up a centre of excellence on its Bangalore campus to bring in new aeorspace technologies to India by this year end, he added.
As part of its initiative to help IITs, polytechnics and other technology institutions upgrade their curricula, Kalambi said, Dassault Systemes was trying to bring in new technologies and embed these with the institutions training curricula. We already have a tie with the Bihar government and are currently holding talks with the Andhra Pradesh government for the same. The response from the state was positive, he said, without sharing details.
AS AUTO LOOKS UP, COMPONENT MANUFACTURERS SEE LIGHT Malabika Sarkar The Financial Express (Editorial)
Due to the downturn in the global auto market, the auto components sector has also had to struggle hard as sales have declined. A majority of small and mid-sized auto part manufacturers and exporters in India were under pressure to stay afloat amidst steep decreases in their business volumes.
However, things have started improving in the recent past as demand in the domestic market has started picking up. In India, we can see some signs of recovery in auto except for the commercial vehicles segment. which has not shown signs of a comeback yet. But two wheelers and passenger cars are showing recovery trends.
Therefore, with early signs of recovery in auto, the auto component sector is believed to be the next sunshine sector. Many global Original Equipment Manufacturers (OEMs) are coming into the country and with this the auto component sector would experience many more acquisitions, mergers and investments, all avenues of growth.
On the one hand if we look at component manufacturers inside India, they will get new customers to sell their product. Secondly, new OEMs might bring along their own suppliers who would want to explore the Indian market, which means more investment. If this happens, some of the current vendors who are of a smaller size might start expanding to meet the demand of the market. So, theres definitely a lot of scope for the auto component manufacturers to widen their business.
According to industry analysts, last year, the auto component industry had a growth of 9.6%. This year they are anticipating a growth of 13% to 15% from the sector. Again, in terms of OEM market, around 8% to 9% growth is expected to happen.
However, we have to wait for another six to seven months to proclaim a sustainable recovery. At present, there is a halt in terms of negative growth.
Therefore, in the near future as we see new players coming in, joint ventures, acquisition, expansion of businesses and overall growth of the business is most likely to take place. malabika.sarkar@expressindia.com http://www.financialexpress.com/news/column-as-auto-looks-up-component-manufacturers-see-light/498401/
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| ALLIED INDUSTRY Go To Top Indrani Dutta The Hindu Kolkata: The Ruia group is in an advanced stage of talks to make another acquisition in the sealing systems segment in Europe.
The acquisition is likely to be concluded by end-August if all the formalities are met by then, it was learnt. Group chairman Pawan Kumar Ruia admitted that the company was keen on acquisitions but declined to give further details.
The group is simultaneously scouting for openings in three segments engineering goods, sealing systems and tyres. All the companies under the scanner now are in Europe. The sealing systems company, which is based in Germany, has a business of around 60 million euro and has among its clientele BMW and Mercedes. The buy is likely to be funded internally. The new buy is likely to be made under Global Finvest Ltd, the special purpose vehicle (SPV) which was formed to buy Schlegel. But it is also possible that a separate SPV will be formed for this buy.
The Ruia group had already made an acquisition in the sealing systems space, picking up Metzeler which was formerly part of the BTR group of the U.K.
The company is now known by its former name as Schlegel Automotive Europe Ltd. It became part of the P K Ruia group in March 2008.
A unit in Pune is also on the cards by 2010. Land had already been acquired and plant and machinery were being procured.
Sealants are used in automobile doors and windows and also on various panels. The group is also keen to buy a crane-making facility in Europe to strengthen its presence in this segment where it owns Jessop and Company, an erstwhile government company which makes wagon, cranes and mining machinery.
Since the acquisition of Dunlop and Falcon Tyres in 2005, Mr. Ruia is yet to taste success with Dunlop but has been able to operate Falcon well. http://www.hindu.com/2009/08/06/stories/2009080656401600.htm
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| FINANCE & INSURANCE Go To Top Sudeep Jain Business Standard
Mumbai: Three years ago, Deepak Dugar of Mahaveer Finance India, a Chennai-based private financier of light commercial vehicles (LCVs), had about 1,000 customers but not enough funds to service them. His customer count has more than doubled to about 2,500, and funding problems are more or less a thing of the past.
Dugar gives credit to their franchise tie-up with Shriram Transport Finance for the buoyancy in business. Earlier, funds were a major problem since banks were the only avenue and we had strict limits. So, then we couldnt service more than 800-1,000 customers. The partnership with Shriram has helped double our business and improve profitability, he says.
Shriram Transport Finance is one of the few organised financiers of used commercial vehicles in the country. According to its Managing Director R Sridhar, tie-ups with small private financiers are beneficial to both sides as cash-strapped small players get access to funds, while Shriram Transport gets the opportunity to tap local customer networks. Besides Dugar, Shriram Finance has tied up with about 500 other private financiers across the country. Now, almost 10 per cent of Shriram Transport Finances loans flow through this channel and the firm is keen on growing its network. As part of the arrangement, the smaller partner is responsible for acquiring customers, collecting payments and pitching in with about 10-20 per cent of the loan amount. The remaining part of the loan is extended by Shriram Transport Finance. Profits or loss above the minimum internal rate of return (IRR) is shared 50:50.
Sridhar claims that innovative business models and the firms niche focus have helped Shriram Finance tide over the downturn that pulled down annual sales of new commercial vehicles by 29 per cent in 2008-09. Bankers corroborate Sridhars claim by saying that the new commercial vehicle financing industry has seen a drop of 30-35 per cent since the beginning of the year. Players such as IndusInd Bank say the year-on-year growth in their portfolios has been only 10-15 per cent. The countrys largest private lender, ICICI Bank, has shrunk its commercial vehicle loanbook by about 10 per cent in the June quarter on a sequential basis.
The countrys largest lender, State Bank of India, says unlike heavy commercial vehicles, demand for finance of LCVs has improved, driven by rural areas.
Since Shriram Finance has a strong network in rural India, the company stands to gain. Its so because financing of pre-owned commercial vehicles rests mostly in the hands of private financiers. Banks consider this category of loans high-risk, because the owners are mini-truck operators who drive their own vehicles. Such vehicles usually ply short distances of less than 200 km and are used to transfer essential commodities.
However, 90 per cent of loans disbursed by Shriram Finance, which has assets worth Rs 24,274.87 crore as of June 30, 2009, are to this segment, which has proved relatively resilient to the slowdown.
For Shriram Finance, although the pace of growth in operating income has slowed to 23 per cent in the June 2009 quarter from 74 per cent a year ago, it is still a respectable percentage given the present economic environment. It has also managed to maintain a net interest margin, or the percentage difference between interest earned on loans and that paid on funds, of 6.5 per cent in the June quarter and restricted non-performing assets (NPAs) to 2.2 per cent of total advances. This is despite having an incremental cost of funds of 10.5 per centsignificantly higher than that for banks, which have access to low-cost retail deposits.
Shriram Transport Finance is able to maintain such strong margins because loans in the used commercial vehicles segment are issued at interest rates in the range of 18-24 per cent, while the coupon for new commercial vehicles is lower at 15-16 per cent. Pricing pressure from competition is not an issue because the only other players in this segment are private financiers, who lend at rates as high as 30 per cent.
However, Sridhar says the firms objective is not necessarily to increase margins, but to bring down the cost of financing for his customers.
We lend to a segment which has no banking habits and no one else in the organised sector is willing to lend to them because they are considered extremely risky. We encourage our customers to become bankable and upgrade to new vehicles so that they can access cheaper financing from banks, he says.
CANARA BANK CUTS AUTO LOAN RATES Business Standard See similar story in: The Hindu Business Line, The Hindu, The Statesman
Bangalore: Public sector lender Canara Bank has announced that it had reduced its interest rates on vehicle loans sanctioned on or after August 1, 2009.
The revised rate is as low as 8.50 per cent for vehicle loans during the first 12 months, 9.50 per cent during the next 24 months, 10 per cent for period above 36 months to 60 months.
For the period above 60 months, the interest rate is 10.50 per cent, according to the press release. Canara Banks auto loans have grown by an almost 26 per cent to Rs 1,200 crore for the quarter ended June 30, 2009, compared to the corresponding quarter of the last financial year.
Compared to the March 2009 quarter, the banks auto loans have increased by just around 8 per cent to Rs 1,200 crore in the June quarter of 2009. http://www.business-standard.com/india/news/canara-bank-cuts-auto-loan-rates/366056/ http://www.thehindubusinessline.com/blnus/17051391.htm http://www.hindu.com/2009/08/06/stories/2009080661691700.htm http://www.thestatesman.net/page.news.php?clid=12&theme=&usrsess=1&id=263628
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| OIL, LUBRICANTS & ALTERNATIVE FUELS Go To Top Rahul Wadke The Hindu Business Line
Mumbai: Mahanagar Gas, a joint venture of Gail (India), the BG Group and the Maharashtra Government, plans to set up 20 compressed natural gas outlets in Mumbai this fiscal.
The exercise will involve spending around Rs 70 crore and will be part of the Rs 300-crore capital expenditure planned for the year.
The company has two centres operating in Mumbai though it is the nodal CNG supplier to thousands of taxis, autorickshaws and luxury buses. The public sector trio of IndianOil, Hindustan Petroleum Corporation and Bharat Petroleum Corporation retails the gas from 136 outlets in Mumbai.
Mr Prafulla Kumar Gupta, Managing Director, Mahanagar Gas, told Business Line said that despite deterrents such as the space crunch and high real estate cost in Mumbai, the company was going ahead with the retail plan due to the growing demand for CNG. Demand has been rising because CNG is cheaper than petrol and diesel and its use has been mandated by law.
Scarce Land Mumbai region has always had a space crunch and we have never got ideal plots for dispensing CNG. This explains why we only have two dispensers when we could have had four. We have now taken land from private parties and the State for setting up the stations. With demand on the rise, compression capacity at individual stations has doubled, he said.
Mahanagar Gas has the added responsibility of meeting the needs of half of the BEST fleet (of over 3,000 buses), which is on a massive CNG conversion drive. By 2012, the fleet is expected to make the transition from diesel to CNG. Likewise, Mahanagar has entered into an agreement with Navi Mumbai Municipal Transport, Thane Municipal Transport, and Maharashtra State Road Transport Corporation (for buses doing less than 200-km trips) for CNG supply.
Piped Natural Gas Mr Gupta said the piped natural gas (PNG) network for domestic consumers was in place and would reach apartments in all housing societies. We already have four lakh households with PNG connections and have targeted a million connections in five years, he said.
The company, which has been around for 15 years, has its PNG network operational across all municipal wards of the city apart from key suburbs such as Mira-Bhayandar and Thane. Work is on to have the network reach the satellite township of Navi Mumbai. A Rs 1,500-crore capex for the next five years will cover CNG, PNG and other infrastructure expansion plans. http://www.thehindubusinessline.com/2009/08/06/stories/2009080651190200.htm
OIL PRICES NEAR $72 DESPITE ROBUST SUPPLIES Agencies See this story in: The Economic Times
Sioux Falls: Oil prices rose Wednesday despite growing crude supplies and more signs of weakness in major sectors like retail and transportation.
Benchmark crude for September delivery gained 55 cents to settle at $71.97 a barrel on the New York Mercantile Exchange. Prices at one point Wednesday morning dipped below $70. In London, Brent prices rose $1.23 to $75.27 a barrel on the ICE Futures exchange, the first time it's closed above $75 this year. http://economictimes.indiatimes.com/Economy/Oil-prices-near-72-a-barrel/articleshow/4861950.cms
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| INTERNATIONAL NEWS Go To Top Reuters See this story in: The Financial Express
Toyota Motor Corp, the world's biggest automaker by sales, beat targets with an operating loss of 194.9 billion yen in the April-June quarter, and lifted an earlier cautious outlook, but luxury carmaker BMW said markets were too volatile to make a full-year forecast.
Toyota, maker of the popular Prius hybrid car, posted its third consecutive quarterly loss, but upped its targets for the full year. For the year to end-March 2010, Toyota forecast an operating loss of 750 billion yen and a net loss of 450 billion yen, better than its forecasts three months ago for losses of 850 billion yen and 550 billion yen, respectively. However, an executive said it was difficult for the group to gauge demand for vehicles outside Japan.
"Demand is being supported to a large extent by government schemes and it's difficult to get a read on how much this will translate into a fundamental recovery in demand," senior managing director Takahiko Ijichi told a news conference.
Toyota raised its forecasts for global vehicle sales by 100,000 vehicles to 6.6 million, solely on the back of expected sales in Japan, where it has benefited from incentives and tax breaks on more fuel efficient vehicles.
BMW, which published an EBIT of 114 million euros for the first half, compared with a Reuters poll average of 42 million euros, said it could not give a forecast for 2009 earnings "due to the highly volatile state of the markets and uncertainty with regard to future economic developments".
However, the German manufacturer of high-end cars said it saw the downward trend of deliveries to customers seen in the first six months ending.
By 3:45 am EDT, Toyota stock had closed down 1.47% before its results publication, while BMW was trading down 1.53% at 32.41 euros, against a 1.25% fall in the DJ Stoxx European
Autos index July car sales figures for Germany, Europe's biggest auto market, which has been strongly supported in recent months by a bonus scheme to encourage drivers to trade in old cars, are due out later in the day.
Data for the United States, France, Italy and Spain released on Monday showed government scrapping incentive schemes boosted sales last month in those markets too. http://www.financialexpress.com/news/global-automakers-beat-forecasts/497973/
GM TO SPEED CAR LAUNCHES, TARGET MARKET SHARE GAIN Kevin Krolicki/ Reuters See this story in: Yahoo India
Detroit General Motors Co will use some of the funding left from its bankruptcy reorganization to accelerate key vehicle launches as it focuses on recapturing lost market share, the automaker's chairman said on Wednesday.
Ed Whitacre, the former chief executive of AT&T Inc, was speaking a day after concluding his first meeting presiding as chairman of GM's reorganized board. At the two-day board meeting, directors asked the automaker, now majority owned by the U.S. government, to move up the start of production of some planned models, addressing a weakness for the reorganized company.
"It's important to us that we improve our market share. That translates to the top line, and that is important to this company," Whitacre told a small group of reporters on a conference call organized by GM. "We need to improve the number of vehicles sold." Whitacre was one of 10 appointees to the reorganized board supported by the U.S. Treasury, which now owns a nearly 61 percent stake in GM.
The 13-member board gave its unanimous endorsement to GM Chief Executive Fritz Henderson at the initial meeting of directors, Whitacre said.
Henderson took his job in March when the Obama administration asked his predecessor, Rick Wagoner, to step down. From the start, Henderson has faced questions about whether he would be an interim choice to run the automaker.
A veteran GM executive, Henderson has streamlined the senior management ranks and promised faster decision-making and less bureaucracy at the 100-year-old company. "Fritz and I talk almost every day. The board unanimously supports him," Whitacre said. "He certainly has our blessing and encouragement. He knows what the board expects from him. He's enthusiastic. He's a smart guy, and we think he can get the job done. He's going to run GM."
Over the past four years, GM has lost $82 billion and it has not announced a timetable for returning to profit. "We have a profitability plan and I think we'll surprise some people with how quickly we get there," Whitacre said.
Spending more on cars Ron Bloom, who heads the Obama administration's autos task force, met over the weekend with GM directors in Detroit before the first board meeting, Whitacre said. Bloom, who has pledged that the government will be a hands-off investor in GM, said Whitacre was right to send a message that the automaker needs to target growth now. "I think the imperative to grow is a very important imperative. It brings a lot of positive changes," Bloom told reporters on the sidelines of an industry event in Traverse City, Michigan. "We are hopeful the company can grow."
Whitacre declined to say which models GM is now targeting for faster production. The automaker typically has not disclosed that kind of detailed product-related information in the past because of the competitive stakes.
But the move by GM's board to spend more now on vehicle launches marks a reversal from its stance since late last year, when it began delaying projects in order to shore up cash.
Whitacre said directors share the view that the economy is improving and spent a significant part of the meeting discussing how GM can take advantage of improving sales.
GM had a 19.5 percent share of the U.S. market in the first seven months of this year -- including the Saab, Hummer and Saturn brands it plans to drop -- after losing market share for years to import brands led by Toyota Motor Corp. Toyota is No. 2 in the U.S. market with a 17-percent share.
"We're not going to draw a line in the sand and try to fight it out there. We're going to try to improve (market share)," Whitacre said.
The move by GM to invest more on vehicles marks the first decision by the automaker on how to use government financing remaining in an escrow account earmarked for its turnaround.
That account contained about $20 billion at the time GM exited bankruptcy in July. GM executives have said another potential use for the funds would be to make a payment this year against its projected pension shortfall.
GM estimated earlier this year that it would need to contribute over $18 billion to its pension funds in the two-year span of 2013 and 2014.
Bloom said the Treasury would remain involved in monitoring GM's use of its remaining funding. He declined to say how much money remained. "We're not releasing that exact data at this time," he said. http://in.biz.yahoo.com/090805/137/bau01b.html
HONDA CAR BUSINESS TO RETURN TO PROFIT IN H2 Chang-Ran Kim and Yoshifumi Takemoto / Reuters See this story in: mint
Tokyo: Honda Motor Co expects improving sales to return its car business to profitability in the second half even without the support of its robust financial services division, a top executive said on Wednesday.
Honda, Japans No.2 automaker, posted an unexpected profit for the April-June first financial quarter last week thanks to a 46.8 billion ($491 million) boost from its financial services business, which benefited partly from lower interest rates.
Were expecting to sell just short of 100,000 more cars in the second half (than in the first), so that would result in a profit, chief financial officer Yoichi Hojo told Reuters in an interview.
Losses from a stronger yen assumed for the October-March second half would offset the absence of restructuring costs in that period, but better vehicle sales would have a net positive impact, he said.
Last week Honda lifted its forecast for car sales in the business year to next March by 85,000 vehicles to 3.295 million, projecting better demand in Japan but weaker sales in Europe and the United States. Globally, Honda is using about 80% of its production capacity, Hojo said.
Honda, also the worlds top motorcycle maker, raised its operating profit forecast to 70 billion from 10 billion.
Honda now expects the overall US market to total 10 million vehicles in 2009, down from its previous estimate of 10.5 million despite an increasing likelihood that a cash for clunkers auto sales incentive would be extended by another $2 billion.
We just dont know how this is going to affect us, or how long it will last, Hojo said, adding that the first $1 billion in rebates mainly helped Ford Motor Co.
Honda lowered its annual North American sales forecast by 50,000 to 1.30 million vehicles, without factoring in any sales boost from the scrappage scheme.
While the rebate programme could ultimately result in higher US sales than Honda expects, Hojo said it could also negatively affect profit margins if it forces manufacturers to offer their own incentives to stay competitive.
Honda now intends to spend about 30 billion ($315 million) more in sales incentives in the United States than it had planned three months ago, mainly to sell off 2009 model year passenger cars such as the Civic and Accord. http://www.livemint.com/2009/08/05110044/Honda-car-business-to-return-t.html
TOYOTA TO BUILD AFFORDABLE SPORTS CAR: AKIO TOYODA Agencies See this story in: The Economic Times
Traverse City: Toyota plans to build an affordable sports car that will be launched within the next few years, the new president of the Japanese automaker said Wednesday. http://economictimes.indiatimes.com/News/News-By-Industry/Auto/Automobiles/Toyota-to-build-affordable-sports-car-Akio-Toyoda/articleshow/4860443.cms
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| ECONOMY & FINANCE Go To Top The Hindu Business Line
Mumbai: The rupee strengthened against the dollar on Wednesday, tracking the positive domestic equity market and gains made by other major currencies against the greenback.
The rupee opened at 47.65 and closed at 47.52, higher by 23 paise from the previous close of 47.75. This is a two-month high for the rupee. The rupee is likely to strengthen further because of strong dollar inflows and other major currencies gaining against the dollar, said a forex dealer with a public sector b ank. There is an increase in the risk appetite for currencies other than the dollar as the economic data from countries such as the UK and Germany are better than expected. That is why currencies such as euro and pound are gaining and there are no immediate signs of a correction, said the dealer. In the forward premia market, the six-month closed at 2.65 per cent (2.71 per cent) and the one-year at 2.38 per cent (2.41 per cent). http://www.thehindubusinessline.com/2009/08/06/stories/2009080651610600.htm
SENSEX GAINS NEARLY 73 POINTS IN VOLATILE SESSION PTI See this story in: The Hindu Business Line
Mumbai: In choppy trade, the Bombay Stock Exchange benchmark Sensex rose nearly 73 points on buying by funds at heavy-weight counters on sustained capital inflows.
The Sensex, which shuttled between 15,973.10 and 15,695.11 during the session, ended with a gain of 72.85 at 15,903.83 on news of a higher opening at European stock markets. Similarly, the 50-share National Stock Exchange index Nifty rose by 13.65 points at 4,694.15, after moving between 4,717.20 and 4,629.85 points.
The Sensex climbed 8.1 per cent last month as the first- quarter results of 23 of the 30 Sensex companies beat analysts estimates.
Trading sentiment improved following reports that foreign investors made a net purchase of Indian stocks at Rs 476 crore on Monday.
However, a fall in Asian shares, with Japan's Nikkei down 0.9 per cent and MSCI's measure of other Asian markets falling 0.8 per cent, influenced the trend.
Reliance Industries, with the highest weight in the index, rose 1.67 per cent to Rs 2,075.25 and Infosys, the second-heaviest and largest software exporter, rose to nearly a two-year high by adding 2.49 per cent to Rs 2,094.55. The two carry nearly 26 pe r cent weight in the Sensex. http://www.thehindubusinessline.com/blnus/05051901.htm
NEW INFLATION DATA SERIES TO DOWNGRADE FOOD INFLATION Devika Banerji Business Standard
New Delhi: The new Wholesale Price Index (WPI) series with a revised base of 2004-05, an updated product portfolio and increased data points will understate food inflation, as the weight accorded to primary articles will see a significant decrease from the current 22.02 per cent to around 10 per cent.
The new series, expected to be out by October, will see a significant increase in the weightage for the manufactured products category to around 80 per cent from the current 63.75 per cent. Therefore, the point to point inflation rate derived from this index on a year-on year basis will be driven by wholesale prices of manufactured products rather than commodities like rice, cereals, pulses and wheat, which form a part of the essential consumption basket.
Many economists feel the current WPI series, with a base of 1993-94, already understates food inflation. This has come to the fore since the headline inflation rate as measured by WPI has displayed a consistent downward trend since November 2008, moving into the negative domain in May 2009, though food inflation continued to be in the range of 7-10 per cent.
Moreover, the divergence between WPI and CPI-based inflation also reached historic levels, with CPI inflation at near double-digit levels and WPI inflation at sub-zero. This was also due to the lesser weightage given to food items in the WPI, though the CPI has around 50 per cent representation of food items in its index.
Economists argue that an understatement of food inflation in the major inflation indicators will mislead the direction in which prices are moving; however, it will not have any major effect on the formulation of monetary policies. If the weight of primary articles do go down, then the divergence between CPI and WPI will continue and might increase further. The WPI-based inflation rate, which is followed more widely than CPI, would of course be a little misleading for the common people. However, as increase in food prices is related to supply side problems and monetary policy generally pertains to the demand side, there should not be any major effect on the policy making front, said Subhada Rao , chief economist with YES Bank.
The weights in the respective data series are calculated by the share of specific sectors in the growth rate or gross domestic product (GDP) figures. The contribution of agriculture in the GDP has been on the decline and, therefore, the weight of food products in inflation indices are also going down. The changes are made in accordance with the contribution of different sectors to the GDP figures. The share of agriculture has been going down. The idea is that the effect of an item on the inflation rate is in accordance to its contribution to GDP. The weight of food items in CPI will also see a drop as the base is revised, said Pronab Sen, chief statistician of India.
Agriculture contributed around 32 per cent to the GDP in 1990-91; its share went down to 20 per cent in 2005-06 and now stands at around 16 per cent. The trend continues and as the GDP base is also set to be revised, the share of agriculture is expected to contract further.
The weight of the primary article category was reduced by around 10 percentage points to 22 per cent when the base of the series was revised from 1981-82 to 1993-94, as the manufacturing sector started making a major contribution to growth.
Last Financial closing
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Thursday, August 6, 2009
Indian Auto Industry Update August 06, 2009
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