Rising sales of popular UVs in India to support automakers’ profitability

UV’s quantity share in total automotive gross sales elevated to 49% within the monetary yr ended March 2022 (FY22) from 28% in FY19, in line with Society of Indian Vehicle Producers (SIAM) information. This underscores the rising reputation of UVs over hatchbacks and sedans, whose mixed share dropped from 66% to 48%.

Inside the UV class, the share of entry and mid-level UV in total automotive gross sales rose to 38% in FY22 from 20% in FY19, underscoring prospects’ shift in favour of autos providing more room and versatile street capabilities. Greater numbers of recent launches in UVs in comparison with hatchbacks previously few years have additionally supported development.

We consider UVs are properly positioned to realize additional share in total automotive gross sales. UVs stay fashionable, explicit amongst upgraders and high-income prospects who’re usually much less value acutely aware than patrons of entry degree vehicles. Entry and mid-level UV gross sales rose by 21% yoy in FY21 and 35% in FY22, reflecting resilient demand regardless of the pandemic.

Nonetheless, the rising manufacturing prices will weigh on demand and profitability for the price-sensitive compact hatchbacks and sedans. Excessive commodity costs and extra stringent automobile security and emission requirements have induced almost a 20%-30% enhance in entry-level automotive costs since 2018. Quantity on this section has continued to say no yoy since FY20. In FY22, it stood 32% decrease than FY19, reflecting the impression of upper costs and Covid-19 on demand.

There can be an extra 3%-5% price impression from October 2022 when a regulation requiring further airbags in vehicles comes into pressure. Indian carmakers will focus extra on the UV section, significantly after contemplating its expanded share in total automotive gross sales, in Fitch’s view. This might end in decrease variety of new launches and potential mannequin discontinuations within the entry-level section, reducing development prospects.

We consider that wholesome prospects in UVs will assist Indian carmakers’ volumes and profitability regardless of larger prices. For instance, strong 40% development in India’s UV gross sales in FY22 counterbalanced a 6% fall in entry-level automotive quantity and supported total 13% development yoy, in line with SIAM. Greater share of UVs in gross sales combine supported Tata Motors Restricted’s significantly improved working margins and secure profitability for Maruti Suzuki India Restricted.