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Business Trends

India's passenger vehicle sales to grow in high-single digits this fiscal

Rising commodity prices and vehicle loan rates put damper

Sales of SUVs recorded an 18% jump to 91,483 units amid rising demand for models such Maruti Suzuki’s Vitara Brezza.   © Reuters

MUMBAI (NewsRise) -- India's main automobile trade body predicts high-single digit growth in passenger vehicle sales this fiscal year, even as rising input costs and increased car loan rates cast a shadow over consumer demand.

Increasing prices of all main commodities used in manufacturing of vehicles is "a key concern" for the industry in fiscal year 2019, said Sugata Sen, deputy director general at the Society of Indian Automobile Manufacturers, or SIAM.

In December, most carmakers had said they would raise prices this year to account for increasing commodity costs. Maruti Suzuki India, the nation's largest carmaker, said it increased prices in the range of 1,700 rupees ($26) to 17,000 rupees across all models, effective Jan. 10.

In the year that ended in March, sales of passenger vehicles, including cars, SUVs, and vans, grew 7.9% to 3.3 million units, slower than the previous year. Sen said the pace of growth was restrained by a larger base and the roll-out of a nation-wide Goods and Services Tax, last July. Under the new tax structure, vehicles are taxed at 18% or 28% rate, with an additional levy of up to 15%.

If the GST rates are reduced, or the consumers who faced a setback with the new levies return to purchasing vehicles, demand may recover, Sen said.

Analysts have already warned that the surging price of aluminum, steel, copper and crude may squeeze the operating profitability of automobile companies in January-March. Still, they remain bullish about the growth prospects of the industry on the back of rising government spending on infrastructure and the rural economy.

Mumbai-based brokerage Emkay Research expects passenger vehicle sales in India to grow in double-digits this fiscal year. The brokerage cites strong rural demand, higher disposable incomes, as well as new model launches from car makers.

Meanwhile, sales in March grew 6.4%, helped by sustained demand for sport-utility vehicles that outweighed the waning interest in small cars. According to data from SIAM, sales of passenger vehicles rose to 300,722 units last month from 282,698 a year earlier.

Sales of SUVs recorded an 18% jump to 91,483 units amid rising demand for models such Maruti Suzuki's Vitara Brezza, Jeep's Compass, and Hyundai Motor's Creta. Car sales grew less than 1% to 191,082 units in March.

Automobile sales in India are counted as factory dispatches and not retail sales.

Passenger vehicle sales at Maruti grew 15% in March, similar to the previous month, the fastest pace in six months.

Over the past few years, passenger vehicle sales in India have been driven by the strong demand for SUV models as an increasing number of Indians, with higher disposable incomes, prefer bigger vehicles to negotiate the country's potholed and accident-prone roads. The launch of affordable compact SUVs by companies such as Maruti has prompted a shift in demand.

Sales of industry-wide SUVs expanded 21% last year, outstripping overall passenger vehicle sales.

Domestic sales of trucks and buses, considered a barometer of the economy's health, jumped about 25% to 108,681 units in March. Sales of medium and heavy commercial vehicles grew 16% to 45,760 units, while light commercial vehicle sales soared 31% to 62,921 units.

Sales of two-wheelers rose 18% in March to about 1.7 million units.

--Dhanya Ann Thoppil

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