Compact UVs drive PV sales as demand drops for cars: Ind-Ra

Robust demand for compact utility vehicles like Maruti's Vitara Brezza and Hyundai Creta is driving up overall passenger vehicle sales in India even as those of cars continue to be in a slow lane.

According to a report by India Ratings and Research (Ind-Ra), during the April to December period of current fiscal, UV volumes grew by 33% as compared with a mere 2.5% for cars, while the overall growth rate for passenger vehicles (PVs) stood at 8.6%.

"The key contributors to higher demand for utility vehicles (UVs) are shifting preferences among buyers to 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 passenger vehicles (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% in April to December 2016 from 73.4% 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) Vitara Brezza and Creta from Hyundai Motor India Ltd (HMIL).

MSI and HMIL have reported 124% and 70.5% year-on-year growth in volumes respectively in UV sales in 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% in April-December 2016 from 21% 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%.

"Considering that the rural-centric Bolero model has traditionally accounted for over 30% 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.