Union Minister of Commerce and Industry Piyush Goyal called on automobile makers to consider pricing their products competitively to counter a slowdown in car sales, citing the substantial returns made over the past decade by a recently listed carmaker in India.
Speaking at the CNBC TV18 Global Leadership Summit, Goyal said that the auto industry is sitting on high margins and should look at more competitive pricing to boost the domestic auto market’s growth.
Hyundai Motor India Ltd, the local unit of the South Korean carmaker, went public in October, raising Rs 27,870 crore through its IPO, the biggest share sale ever in India. The IPO was a pure secondary sale of shares by the South Korean parent and the company did not raise any capital for investment in its Indian operations.
Goyal pointed out that this recently listed auto company, which invested about $200 million in India 25 years ago, has seen phenomenal aggregate returns on its investment.
“In the last 10 years alone, they have already remitted dividends and royalties upwards of $12 or $13 billion. They’re sitting on a market cap of which their own holding is still about $15 billion,” said Goyal.
He further noted that the company has an EBITDA margin of more than 21 percent, and a net profit margin of around 9 percent or 10 percent.
“If they (auto industry) become more competitive in their pricing, I’m quite sure they can capture much bigger markets and get much better profits,” the minister said.
It’s up to teh auto industry to decide whether they want to sit on high margins, he added.
“They have huge demand in India. There’s a huge competitive edge manufacturing in India gives you. So I think if smart business people start offering better pricing, better value for money, I’m sure the market will give them a boost,” added Goyal.
Demand slowdown
Recently, market leader Maruti Suzuki raised a red flag on car sales, pointing out that the market for under Rs 10 lakh cars has been contracting, which is a cause for worry.
“Unless the lower end of the market grows, there is going to be no feeders into the upper market,” said RC Bhargava, chairman of Maruti Suzuki. Bhargava cited affordability as the single biggest reason for the de-growth in this category. “People need to have more disposable income,” he said.
Bhargava also went on to say that this concentration of growth at the higher end of the market does not inspire confidence.
“During 2018-19, as much as 80 percent of the car sales in India was in the under-Rs 10 lakh category, and that market is not growing at the moment.
Meanwhile, while announcing its fiscal second quarter earnings, Hyundai said it sold 1.92 lakh passenger vehicles (PVs) during the Q2FY25, which included 1.5 lakh units in the domestic market, down by 5.75 percent from a year earlier.
Hyundai Motor India chief operating officer Tarun Garg said the company is witnessing “flattish growth” in urban areas.
“Most of our sales are coming from rural markets. Our rural penetration has grown to nearly 21 percent, on the back of favourable monsoon, growth in infrastructure, and minimum support prices. In urban areas, however, we are seeing a flattish growth. Whenever there’s macro-economic uncertainty, urban markets will see moderation, but it hasn’t contracted,” Garg said.
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