Maruti Suzuki reported a 17 per cent decline in its net profit for the second quarter, attributed to several factors. These include a lukewarm response during the festive period, an increase in inventory, and decreased demand in the sub-Rs 10 lakh category. The year-on-year reduction of 17.4 per cent in profits is primarily due to the withdrawal of indexation benefits and revised tax rates on long-term capital gains from debt mutual funds. Maruti Suzuki Chairman RC Bhargava emphasized that the decline in the sub-Rs 10 lakh segment is a significant concern.
Sub-10 Lakh Sales Slump: Is a Ripple Effect Looming?
About five years ago, before the COVID pandemic, compact vehicles, especially hatchbacks, dominated the market. Although the SUV category was beginning to increase its market share—largely at the expense of sedans—post-COVID, most car buyers began favouring SUVs across all segments. In recent years, SUVs have surpassed 50 per cent market share, driven by compact models like the Maruti Suzuki Brezza, Fronx, Tata Nexon, and Punch leading the charge.
According to Bhargava, “The market under Rs 10 lakh is not growing; in fact, it’s declining. This is a cause for concern.” He noted that in 2018-2019, small cars made up 80 per cent of the total market. Bhargava further stated, “Affordability is the key reason people are not purchasing cars in that category. We need consumers to have more disposable income.”
While the Rs 10 lakh to Rs 20 lakh segment is thriving, the number of first-time car buyers has decreased. Most purchasers are upgrading or replacing their vehicles. Partho Banerjee, Senior Executive Officer for Sales and Marketing at Maruti Suzuki, highlighted this trend, noting that first-time buyers have dropped to 39 per cent, while buyers replacing or adding vehicles increased by 25 per cent and 26 per cent, respectively.
This shift will impact the market, as projected growth for the next quarter is a cautious 3 per cent to 4 per cent, primarily driven by SUVs and MPVs like the Brezza, Fronx, and Ertiga. Bhargava remarked, “Industry growth for the next two quarters may remain muted, ranging between 3 per cent and 4 per cent.”
Knight in shining armour: Rural demand surge
The demand for vehicles in urban areas has reached an all-time low, with some markets experiencing negative growth. However, Maruti Suzuki has managed to navigate these challenging conditions thanks to strong demand in the rural market. Banerjee expressed optimism, stating, “The rural market experienced an 8 per cent growth in the first half of the year, while the urban market saw a negative of 2 per cent.” The company attributes the downturn in urban sales to several factors, including heatwaves during the summer, erratic monsoon patterns, and upcoming elections in many states.
