Smaller ve­hi­cles take cen­tre stage

Business Standard - - COM­PA­NIES - KR­ISHNA KANT Mum­bai, 4 Oc­to­ber

As the poor eco­nomic sce­nario takes a toll on in­di­vid­ual in­comes and the job mar­ket, car buy­ers are now opt­ing for smaller and cheaper cars, away from premium hatch­backs and sedans.

The re­sult has been a steady de­cline in per-ve­hi­cle rev­enue for car mak­ers. Rev­enue break-up of car mak­ers also sug­gests that buy­ers are now chang­ing their cars less fre­quently, com­pared to the past. Con­se­quently, rev­enues from spare parts and ve­hi­cle ser­vic­ing are grow­ing at a faster clip than rev­enue from ve­hi­cle sales in the do­mes­tic mar­ket.

Vol­ume car mak­ers, in­clud­ing Maruti Suzuki, Hyundai Mo­tors and Honda Cars, have seen a steady de­cline in their av­er­age sales re­al­i­sa­tion in the last three years. This in­di­cates a con­sumer’s grow­ing pref­er­ence for cheaper and en­try level cars.

In­dus­try leader Maruti Suzuki’s av­er­age sales re­al­i­sa­tion in the do­mes­tic mar­ket de­clined by nearly 11 per cent be­tween FY17 and FY19. Maruti earned rev­enues of ~3.97 lakh per ve­hi­cle on an av­er­age in FY19 down from a record high of ~4.43 lakh in FY17. The num­bers are based on Maruti Suzuki’s do­mes­tic sales vol­ume and rev­enues from ve­hi­cle sales net of ex­port rev­enues.

The de­cline in re­al­i­sa­tion for Hyundai Mo­tors In­dia was even more steep. Hyundai’s av­er­age re­al­i­sa­tion (for do­mes­tic sales) de­clined by 14.2 per cent from ~5.62 lakh in FY17 to ~4.82 in FY19. Honda Cars av­er­age sales re­al­i­sa­tion dur­ing the pe­riod was down 11.5 per cent from ~8.41 lakh in FY17 to ~7.45 lakh in FY19.

In FY20, do­mes­tic sales of Maruti’s en­try level and com­pact cars were down 17 per cent year-on-year (YOY) against a 45.3 per cent con­trac­tion in sales of sedans.

The eco­nomic shock from Covid19 has given a fur­ther filip to this trend in the in­dus­try. In the first six-months of FY21, Maruti’s sedan sales were down 67 per cent YOY against 23.1 per cent de­cline in sales of its mini cars.

“In the last few years, sales of en­try and com­pact hatch­backs have grown faster than premium mod­els and sedans. This could have some bear­ing on car mak­ers’ rev­enue mix,” said Moti­lal Oswal auto an­a­lysts Ji­nesh Gandhi. He at­trib­uted this to the poor in­come growth in ur­ban ar­eas and the tough job sce­nario.

This has bro­ken the his­tor­i­cal trend of a steady rise in car mak­ers’ av­er­age sales re­al­i­sa­tion as buy­ers up­graded to premium mod­els over the years.

For ex­am­ple, Maruti’s av­er­age sales re­al­i­sa­tion grew at an an­nu­alised rate of 6.2 per cent be­tween FY10 and FY17 from ~2.91 lakh per ve­hi­cle to ~4.43 lakh. In the same pe­riod, Hyundai’s av­er­age sales re­al­i­sa­tion has grown at a com­pound an­nual rate (CAGR) of 6.9 per cent.

Some an­a­lyst see it as cycli­cal down­turn. “This is the long­est dry spell for the in­dus­try and it started some­time in 2017,” said Shailen­dra Ku­mar, chief in­vest­ment of­fi­cer at Narno­lia Securities.

Oth­ers see it as a nat­u­ral evo­lu­tion. “There has been a shift in pref­er­ence to­wards com­pact SUVS in re­cent years and this has cannabilis­ed sales of sedans,” said Su­man Chowd­hury of Acuite Rat­ings & Re­search.

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