India (Commonwealth) _ The focus is squarely on Sport Utility Vehicles (SUVs), which are expected to propel the passenger vehicle (PV) segment to previously unheard-of heights as India’s automotive industry prepares for yet another year of record-breaking success. SUVs are not only changing the dynamics of the market but also guiding the financial health of manufacturers towards a better future. This fiscal year, growth of 5-7% is predicted, building on a strong foundation of 6-8% projected for the current year.
Rise of SUV
The story of changing consumer tastes in India is reflected in the popularity of SUVs, which are primarily driven by a desire for larger, more flexible cars with higher seating positions.
According to CRISIL Ratings’ estimate, the SUV market share has significantly increased, rising from around 28% pre-pandemic in FY2019 to approximately 60% of total domestic volumes this fiscal year. This upsurge is supported by a robust pipeline of new models, including electric versions, and the normalization of semiconductor supply, which suggests even higher growth driven by improvements in credit availability and technology.
Financial Consequences
Because SUVs are more popular and have greater margins, operational margins are expected to increase to 11.5%–12.5% in the next fiscal year. Because of their strong balance sheets and better cash flows, automakers are able to navigate this environment and make large capital expenditures for capacity development without taking on a considerable amount of debt. Given that PV producers account for more than 80% of the industry, smart financial management is essential.
With over 80% of the market represented by PV manufacturers, smart financial management is essential as they get ready for nearly twice as much capital expenditure (capex) in FY2024 and FY2025—roughly INR 44,000 crore.
SUVs are popular, but the demand for automobiles and exports shows a different image. Car sales have been suppressed, a trend that is anticipated to continue due to the persistent problems in the rural market and rising vehicle costs. Concerns about inflation and the availability of foreign exchange in important markets have hindered PV exports, and it is anticipated that this trend will continue into the upcoming fiscal year.
Prospects for the Future
Given that capacity utilization is predicted to reach a peak of about 85% during this fiscal year, manufacturers are making significant investments to ensure their SUVs are ready for the future. Notwithstanding the substantial expenditure, manufacturers’ strong financial position and cash flow are expected to maintain favorable debt metrics and stable credit profiles.
The automobile industry is keeping a close eye on the future. Important variables to keep an eye on include changes in borrowing rates, commodity prices, dealer inventory levels, rural demand impacted by monsoon patterns, and global macroeconomic circumstances. These factors will be very important in determining how India’s PV industry develops, especially in the rapidly growing SUV sector.
SUVs’ influence goes beyond market share as Indian customers continue to be enthralled with them; manufacturers’ strategic financial planning and operational choices are affected. The PV industry is poised to enter a new phase of development and stability, with a close eye on capacity expansion, technical innovation, and financial stability. Even if the road ahead may present some difficulties, it presents a bright future for producers equipped to handle the complexity of India’s shifting automotive scene.
India’s economy and PV growth are closely intertwined, and future growth will typically follow GDP growth, with sporadic leads or lags based on consumer sentiment.
Products with SUV/crossover body styles now hold 49% of the market for passenger vehicles in India. According to a market survey, the lack of demand for entry-level products has caused the hatchback category in India to shrink to 30%. In the upcoming months, there will be a significant change in demand in India from sedans to SUVs and crossovers.
SUVs made up over half of all passenger vehicles (PVs) that were shipped from the production line to dealers, indicating that more Indians are choosing to buy automobiles that cost at least Rs 10 lakh. “If you examine 2023 from January to December, wholesales exceeded 41.08 lakh.” This is a significant turning point in the history of the Indian PV industry since it is the first time the sector has ever exceeded the 4 million level.
