More first-time car buyers are returning to the market, indicating sustained recovery in India's entry-level passenger vehicle segment after years of slowdown, according to senior officials at Maruti Suzuki.
The country's largest carmaker said first-time buyers accounted for 54% of its sales in the first quarter, up from 51% in the previous quarter, with the improvement coinciding with a sharp rise in small-car sales after the recent reduction in goods and services tax GST.
"Our first-time buyer percentage has improved significantly from 51% in the quarter 4 to about 54% in this quarter. So just within one quarter it has improved significantly, which can also be corroborated with the steep increase in small car volumes," Rahul Bharti, senior executive officer for corporate affairs at Maruti Suzuki, told investors.
The increase in first-time buyers comes as Maruti Suzuki reported a 34% year-on-year rise in small-car sales during the quarter. The company said its portfolio in the 18% GST slab, which comprises small cars, also grew by about 34% year on year, while its portfolio in the 40% GST slab expanded by nearly 30%.
The rebound in small cars should be viewed in the context of a weak base after several years of subdued demand. "For Maruti Suzuki, small cars have come back with a bang. Our small car sales grew 34% in the quarter, year on year," he said.
The entry-level segment has struggled in recent years as stricter safety and regulatory requirements increased vehicle prices. The additional cost has had a disproportionately larger impact on affordable cars than on premium vehicles.
The percentage increase in vehicle cost is significantly higher for an entry-level car than for vehicles priced above Rs 15-20 lakh. Buyers in this segment remain highly price-sensitive and continue to prioritise fuel efficiency and overall ownership costs.
Maruti Suzuki, which commands more than 80% of India's hatchback market, expects the segment's recovery to continue after a prolonged slowdown.
The company believes the recent GST reduction has improved affordability and helped revive demand among first-time buyers, a customer group that traditionally forms the backbone of the small-car market.
According to Bharti, Maruti Suzuki sold about 359,000 vehicles in the 18% GST category against an industry volume of around 734,000 units. In the 40% GST category, it sold about 161,000 vehicles, while industry sales stood at around 470,000 units.
Management also indicated that demand remained healthy across urban as well as rural markets during the quarter. "Demand continued to remain strong across both urban and upcountry markets," Bharti said.
The automaker’s dealer inventory is at around 13 days, well below the company's preferred inventory level of about one month. Pending customer orders stood at around 130,000 units at the end of the quarter.
Despite the improvement in demand, Maruti Suzuki said production capacity, rather than customer demand, remains the limiting factor for growth.
"We had mentioned in the beginning of the year that this year most likely our sales would be constrained by the supply side rather than the demand side. The demand side seems to be healthy," Bharti said.
The company has begun expanding manufacturing capacity to meet the higher demand. It commissioned a new production line at Kharkhoda during the first quarter and started production at a fourth manufacturing line at its Hansalpur plant in Gujarat in July.
Together, the two facilities add annual installed capacity of about 500,000 vehicles, although management said capacity utilisation will ramp up gradually.
"For the first time in many, many years, every aspect of our business seems to be highly positive," he said, pointing to stronger demand, the revival in small cars, robust SUV growth, higher exports and expanding manufacturing capacity.