Sri Lanka’s vehicle population now at 5.6 mln, seen rising to 6.5 mln, report says
View(s):A steady rebound in 2H2014 led new vehicle registrations to grow 32 per cent YoY in 2014, says a research report by Softlogic Stockbrokers on Sri Lanka’s motor sector.
“With the improving economic growth coupled with the low interest rate environment and the recent budgetary measure triggering lower taxes for specific categories of motor vehicles, the motor sector of Sri Lanka reversed its sluggish trajectory from 2H2014. Vehicle registrations have already rebounded to a growth trajectory improving to a near 60 per cent YoY during 2H2014 thereby registering a growth of 32 per cent YoY to 429,556 during the full year, after declining for two consecutive years respectively on the back of increased import taxes,” it said.
The motor industry saw its peak during 2010-2011 as a result of the economy opening up with the post war boom resulting in heightened demand for transport services.
Thereby, the report noted, new vehicle registrations witnessed phenomenal growth rates of 76 per cent and 46 per cent in 2010 and 2011 respectively carrying the total vehicle population to over 5.2 million by 2013.
With the notable rise seen in 2H2014, the total vehicle population now stands at 5.6 million. “We expect new vehicle registrations to grow at a CAGR of 6 per cent over 2014-2016E resulting in the total vehicle population of the country surpassing nearly 6.5 million led by simplified taxes and improved consumer confidence amidst the low interest rate environment,” it said.
Softlogic’s report dated January 20 said budget 2015 included a few key measures which are likely to positively impact on motor sector players. In lieu of all multiple taxes, a special provision tax on motor vehicle imports has been introduced. Meanwhile the reduction in value added tax to 11 per cent from the present rate of 12 per cent coupled with the simplified tax structure is expected to result in an overall reduction in vehicle import taxes.
“…as per the Vehicle Importers Association President’s statements to media, there might be significant reductions up to Rs. 300,000 in the prices of vehicles with engine capacity of 1000 cc or less. Therefore the reduction in vehicle prices is likely to somewhat revive the sluggish sentiment of the motor sector and positively impact all motor sector players. However a new interim budget will be presented on January 29 which might change the current status quo,” it said.
Listed motor sector counters collectively account for a market capitalisation of Rs. 25.1 billion and consists of five main companies.
The highest cap counter within the sector, United Motors (UML) commands a market share of near 41 per cent of the total Japanese brand new vehicle imports as the sole distributor of Mitsubishi passenger and Fuso commercial vehicles in Sri Lanka. Moreover UML controls 9 per cent of the total market.
Diesel and Engineering Motors (DIMO) operates as the distributor of Mercedes, Chrysler, Jeep and TATA. Further, Lanka Ashok Leyland (ASHOK), the market leader of fully built imported buses to the public sector, is a joint venture between Lanka Leyland and Ashok Leyland India. The duopoly importer and distributor of Japanese Mazda brand and the exclusive distributor for the Korean Kia brand, CM Holdings also provides spare parts for brands like Mazda, Land Rover and Tata.
Sathosa Motors, the highest ROE generating company in the sector, commands the leading position in the light commercial vehicle segment via being the exclusive distributor of Isuzu and Land Rover brands, the report said.