Passenger vehicle on verge of a new structural shift: CARE

CARE Research has come out with its report on passenger vehicle. According to the research firm, Indian passenger car market continues to be dominated by small and compact segment. 

The Indian passenger car market continues to be dominated by small and compact segment. However, de-regulation in petrol during the first quarter of FY11 instigated series of structural shifts in the industry. CARE Research observed that the small and compact car segment which had been the sole driver of the industry growth not so long back, observed a drop in demand by around 1 per cent in FY12, while the bigger midsize cars and utility vehicles (UVs) were the driver for the industry growth registering a rise of around 24 per cent and 16 per cent respectively. CARE Research observed that some of the key parameters like de-regulation of petrol, supply disruption in Maruti Suzuki, diminishing price differentials between compact and mid-size cars, and launches of affordable UVs led to the structural changes in the passenger vehicle industry during last two years. De-regulation in petrol prices, triggered a major structural change in the industry: The last 2-3 years period has been challenging for the industry, as it had to cope with some of the most significant structural change ever to have taken place in passenger vehicle industry. De-regularisation in petrol prices has been the most substantial one, which led to spurt in the demand for diesel vehicles. CARE Research observed that the composition of diesel vehicles in overall passenger vehicle sales was estimated to be around 25 per cent in FY09 has increased to around 43-45 per cent in FY12. In the models where the option of both diesel and petrol is available, the share of diesel variants is even higher at around 80 per cent. Aggressive pricing through product re-engineering led increase in the popularity of UVs: CARE Research observed that aggressive pricing of these UVs greatly influences the demand as it has considerably reduced the price differential between midsize sedan and small UVs. OEMs have been able to bring down the price either by using new generation of highly efficient lower power engines or through sharing of platforms with existing car models. For example, these recent breed of UVs are using new generation engines having a capacity of around 1000cc - 1500cc, but are able to generate power similar to the conventional engines having a capacity of around 2200cc - 2500cc. Further, greater seating space and comfort provided by these models also enabled UVs to grab significant share of demand from midsize cars. CARE Research believes that increasing popularity of small UVs has enabled the segment to record an impressive rise of around 61 per cent even during the tough times of the first nine months of FY13. New model launches in mini UVs would continue to keep demand for UVs strong: UVs will continue to improve their market share as they provide a variety of features over their counterparts like better power, convenience of travelling with family due to large space, comfort during long travels, better view of road, more street presence etc. Moreover, wide range of diesel offerings and host of new model launches lined up in UV segment both premium as well as mini UV segment will continue to drive growth for UVs . CARE Research observed that almost all the key manufacturers are planning to enhance their presence in the UV segment by launching new models. Some of the key launches lined up in this segment are Chevrolet Enjoy, Ford Ecosport, mini Tata Aria etc. CARE Research foresees, UV demand to remain strong and would continue to drive growth in PV industry for near to medium term period owing to healthy demand from tour operators for affordable UVs, increased preference from high income class customers with large families combined with expansion in demand for luxury UVs due to availability of wide range of models. Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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