The share of sport utility vehicles (SUVs) in total passenger vehicle (PV) sales in India is expected to grow from 51 per cent in 2022-23 to 62 per cent in 2024-25, a CRISIL Ratings report stated on Monday.
PV sales are expected to grow by 5-7 per cent in 2024-25 due to rise in demand for SUVs, it said. In 2023-24, the PV sales growth is expected to be about 6-8 per cent, it added.
Domestic PV wholesales had increased to 3.89 million units in 2022-23, recording a growth of 26.73 per cent year-on-year (Y-o-Y), according to data by the Society of Indian Automobile Manufacturers (SIAM).
Last month, Maruti Suzuki India’s Executive Director (corporate affairs) Rahul Bharti said during the post Q3 results call with analysts that de-growth in small car demand cannot be explained by just a single phenomenon.
When asked if the entry-level customers are opting for micro SUVs instead of small cars, he replied,
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“While there are some customers who are skipping the levels, there are many more who are expecting the prices to be more benign and affordable. We had a price point of Rs 2.5 lakh for Alto 800.
Now, the minimum price at which you can buy a car in India is above Rs 4 lakh. And, even at that price point, not much sale happens. So, we are waiting for the income growth in that consumer segment to catch up to the price point. After that, we can hope for some small car demand revival.”
“These are some relevant numbers; total hatches sold in FY23 for Maruti Suzuki were Rs 945,000 units and it came down to Rs 836,000 units in FY24. The total hatch segment in the industry during the last quarter has come down to 25 per cent. At the peak, in FY18, this number was at 47 per cent. So, it's a large shrinkage,” he added.
“Healthy volume growth of the SUV segment, which enjoys higher margin, will steer an improvement in operating margin to 11.5 per cent-12.5 per cent next financial year.
Better cash generation, along with strong balance sheet and robust liquidity will support funding of sizable capital expenditure to set up additional capacity, obviating the need for material debt addition and keeping credit profiles of PV makers stable,” CRISIL said.
Anuj Sethi, senior director at CRISIL Ratings, predicts that while overall PV volumes will increase by 5-7 per cent, the demand for SUVs will grow even faster, at over 12 per cent. It will be driven by various factors such as feature-rich launches at competitive prices, a range of technology choices, including hybrid and electric, and improved access to credit.
In contrast, demand for smaller cars (sedans etc) is seen slowing this financial year, too, due to the ongoing weakness in the rural market and lower affordability at the entry level, CRISIL said.
The cost of vehicles has risen in the past 3-4 years as manufacturers have been passing on higher commodity prices.
They also had to comply with more stringent regulations on safety and emissions.
The situation is similar on the exports front. The share of PV exports is estimated to have slowed to 14 per cent this financial year compared with about 17 per cent in 2018-19.
It is mainly due to inflationary headwinds and limited availability of foreign exchange in key export markets — Latin America, Southeast Asia and Africa — in the past two years.
“This trend is expected to continue next financial year,” CRISIL noted.