Deepika Agrawal 
The volume of passenger vehicles (PVs) will climb to a new peak for the third straight time next fiscal, growing 5-7% on a
high base of 6-8% estimated for the current fiscal. The peak comes on the back of the popularity of sport utility vehicles (SUVs) even as demand for cars and exports remain muted, a CRISIL Ratings report stated.
The report states that the SUV segment’s healthy volume growth, which enjoys higher margin, will steer an improvement in operating
margin to 11.5%-12.5% next fiscal. PV makers will be able to generate better cash alongside maintaining strong balance sheet and robust liquidity. These will support funding of sizeable capital expenditure to set up additional capacity, obviating the need for material debt addition and keeping credit profiles of PV makers stable. The report is based on an analysis of six PV makers, accounting for over 80% of the market.
Demand for SUVs has grown two-fold since the pandemic era fiscal of 2019, doubling from 28% of total domestic volume to 60% this fiscal. The consumer preference for SUVs is expected to further grow backed by a healthy pipeline of new models being launched across price points, including electric variants, as well as normalised availability of semiconductors after a prolonged period of short supply. “While the overall PV volume is seen rising 5-7% next fiscal, we expect demand for SUVs to accelerate at twice the pace at over 12%,” said Anuj Sethi, Senior Director, CRISIL Ratings.
However, the overall demand for cars is seen slowing this fiscal due to the ongoing weakness in the rural market and lower
affordability at the entry level. Over the past three to four years, manufacturers have been passing on higher commodity prices to customers, leading to rise in prices. The need to comply with more stringent regulations on safety and emissions has also led to increase in prices.
On the exports front too, there has been a slowing down of growth with share of PV exports estimated to have dropped to 14% this fiscal compared with 17% in fiscal 2019. This has been mainly attributed to inflationary headwinds and limited availability of foreign exchange in key export markets in the past two years. This trend is expected to continue next fiscal.
