Passenger vehicle growth to moderate on weakness in entry level car segment and high base effect

New Delhi, Jan 31

Domestic passenger vehicle industry growth is expected to moderate to 4.5% in FY2025E due to weakness in the entry-level car segment and high base effect, Kotak Institutional Equities said in a report.

Volume growth is expected to moderate in FY2025E to 4.5% yoy owing to high base effect, receding order book in SUV segments across most of the OEMs, and sustained pressure in demand trends of entry-level hatchback volumes.

“We expect the SUV segment to continue to outperform. We expect market share of Maruti Suzuki to decline in FY2025E due to newer launches by competitors across SUV segments whereas we expect Tata Motors to gain market share as it will strengthen its positioning in the mid-size SUV segment with newer launches. Demand trends in the global luxury car market is expected to remain steady, which augurs well for JLR,” the report said.

“We expect domestic PV volume growth to remain steady at 6% yoy in FY2024E led by support from order backlog in the SUV segment,” it said.

SUV segment will continue to outperform industry growth on account of newer launches by the OEMs, and changing consumers’ preference. Also, we expect the hatchback and sedan segments to underperform owing to weak demand trends in entry-level segment, and shift of consumers from premium hatchback to micro/compact SUV segments aided by overlapping price points.

MSIL to lose market share over FY2025-26E, the report said. We expect MSIL’s market share to decline by 50-70 bps over FY2025-26E mainly on account of newer launches by competitors across SUV segments, weak demand trends in entry-level hatchback segment, and continued underperformance of premium hatchback segment due to change in consumers’ preference. We expect TTMT market share to improve by 30-60 bps driven by newer launches, especially in SUV and EV segments. Also, we expect M&M to gain market share over FY2024-26E as the company’s orderbook remained strong led by its strong positioning in the large SUV segment, the report said.

“We maintain SELL rating on Maruti Suzuki with a revised FV of Rs 8,700. Despite having multiple launches over the past two years, the company has not been able to meaningfully gain market share in the domestic PV segment. Also, with newer launches from competitors in CY2024E, we expect the company to lose market share. Also, we maintain REDUCE rating on Tata Motors with a revised FV of Rs800. We believe all the near-term positives are priced in at CMP pertaining to (1) market share gain in domestic PV and CV segments, (2) improvement in profitability of JLR business and (3) deleveraging of balance sheet. However, medium-term risk due to rapid electrification in China and Europe remains for the JLR business in our view,” the report said.