“Higher incomes and a strong order book driven by pent-up demand, especially for sport utility vehicles (SUVs), will support domestic growth even as exports remain sluggish, helping vehicle sales touch a record of 5 million units in the next fiscal year,” Crisil Ratings’ research showed.
SUVs are expected to nearly double their share in overall domestic sales to roughly 55% in fiscal 2024 from about 28% in fiscal 2018.
Sharper focus by original equipment manufacturers (OEMs) on SUVs, including compact SUVs, fuelled by customer preference, “is driving growth, even as sales of sedans and entry-level passenger cars remains sluggish,” Anuj Sethi, senior director at the organisation said.
Strong demand should help soften a hit to car part manufacturers from higher costs due to new regulations which require all vehicles to achieve emission targets in real-world conditions, besides being tested in a laboratory environment.
Operating margins are expected to improve to 9%-10% next fiscal from 8.0%-8.5% this fiscal, which should help OEMs set up additional capacity including for electric vehicles.
The prices of key raw materials like steel, aluminum and rubber have moderated in the last five months after treading higher until the first half of the ongoing fiscal. “This, together with multiple price hikes by OEMs and strong volume growth will dive up operating margin by 100-200 bps to around 9-10% next fiscal despite higher costs for components being installed for regulations,” it said. Major disruptions in the electric vehicle space are unlikely given the slow addition of charging infrastructure, but this could gather pace over time, Crisil said. The share of electric vehicles is at 1% of total sales currently.
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