Robust demand for compact utility vehicles (UVs) like Maruti's Vitara Brezza and Hyundai Creta is driving up overall passenger vehicle sales in India even as the overall segment continues to be in the slow lane.
According to a report by India Ratings and Research (Ind-Ra), during the April to December period of current financial year, UV volumes grew by 33 per cent as compared with a mere 2.5 per cent for cars, while the overall growth rate for passenger vehicles (PVs) stood at 8.6 per cent.
"The key contributors to higher demand for UVs are shifting preferences among buyers for aspirational products such as UVs and more options available in the segment," the report said.
Buyers having earlier opted for larger UVs are migrating towards compact UVs given the regulatory challenges, such as the ban on registration of new large diesel PVs in the National Capital Region, which has hurt large diesel UVs in particular, it added.
In addition, attractive price points and availability of both petrol and diesel variants have also fuelled demand for compact UVs, the report said.
"Buyers shifting preferences to UVs from cars is evident from the reduction in the proportion of car sales-to-PV segment volumes to 69.3 per cent in April to December 2016, from 73.4 per cent in the corresponding period of the previous year," it added.
The surge in UV sales volumes can in turn be attributed to the success of the new compact UV models like Maruti Suzuki India's (MSI's) Vitara Brezza and Creta from Hyundai Motor India Ltd (HMIL).
MSI and HMIL have reported 124 per cent and 70.5 per cent year-on-year growth in volumes, respectively, in UV sales in the April to December 2016 period.
"In line with the increased volume contribution from UVs, the share of UVs in total domestic PV volumes has increased to almost 25 per cent in April-December 2016 from 21 per cent in FY16," the report said.
On the other hand, Mahindra & Mahindra, which does not have much presence in the car segment, reported an increase in UV volumes at a modest growth rate of 4.4 per cent.
"Considering that the rural-centric Bolero model has traditionally accounted for over 30 per cent of Mahindra's UV volumes, the company's sales was impacted due to demonetisation," the report said.
In general, UVs entail higher margins than cars and companies generating high revenue growth through UVs are expected to see improvement in operating margins in financial year 2016-17, it added.