Changing gears: India's growing love for SUVs key to Hyundai's success

The SUV segment in India is expected to grow at a CAGR of 7% to 9% from FY24 to FY29

IPO-bound Hyundai Motor India Limited (HMIL) is betting big on India's new-found obsession with sports utility vehicles (SUVs). According to its Draft Red Herring Prospectus (DRHP), SUV share in India's car market is set to jump to 60 per cent by FY 29 from around 50 per cent now.

The company said its future success would largely depend on the success of its SUVs in the Indian market, which is experiencing cannibalisation of hatchbacks and compact sedans.

The share of SUVs in the Indian market was hardly 23 per cent in FY19. The share of hatchbacks dipped from 47 per cent to 28 per cent between FY19 and FY24, while that of sedans declined from 19 per cent to 9 per cent during the same period.

 

"With our premiumisation strategy, we expect the SUVs to continue to form a substantial portion of our passenger vehicle portfolio and sales. Consequently, our future success will, to a large extent, depend on continued demand for and market acceptance of our SUVs, and our ability to enhance, develop and manufacture SUVs that meet the evolving needs of our customers," the company said in its DRHP. 

HMIL’s established presence in the domestic passenger vehicles market is underpinned by the strong position of the Grand i10 Nios, Aura, and i20 in the compact car segment, and Creta, Venue, Alcazar and Tucson in the SUV space. 

As many as 30 SUVs have been launched in the Indian market in the last five years, versus four hatchbacks and three sedans.

According to a CRISIL report, the SUV segment in India is expected to grow at a compound annual growth rate (CAGR) of 7 per cent to 9 per cent from financial years 2024 to 2029.

However, a change in government regulations, including those related to taxation, consumer preferences, technological change, or other factors that could reduce demand for SUVs or any disruption in the manufacturing of SUVs, may impact this, the DRHP said. 

"Modern consumers in India are preferring mid-end or top-end versions of the vehicles, moving away from the traditional fuel-efficient budget-friendly small cars towards higher priced feature-loaded larger cars which offer much more space, taller ride height, seamless connectivity, and improved performance," the company said.

"An increase in spending from the upper middle class after the pandemic led to more purchases of SUVs, supported by a higher number of model launches in the SUV category (which has higher profit margins) and an increase in affordability with the launch of compact SUVs led to cannibalisation of hatchbacks and compact sedans," it said. 

Typically, hatchbacks are priced (ex-showroom) between Rs 4 lakh to Rs 10 lakh. Sedans range between Rs 10 lakh to Rs 25 lakh, while SUVs are normally priced within Rs 6 lakh to Rs 45 lakh range, and MPVs are between Rs 10 lakh to Rs 30 lakh. 

"The launch of Ford EcoSport provided a real thrust to the compact SUV sub-segment in India around FY14. Over the years, the introduction of vehicles like Maruti Suzuki Brezza (FY16) and Tata Nexon (FY18) aided the growth of the entire SUV segment, as well as helped compact SUVs gain a sizeable share within the SUV segment," it said.

Launches of Hyundai Venue (FY20), Kia Sonet (FY21), Tata Punch (FY22), and Maruti Suzuki Fronx (FY24) over and above the launch of facelifts of other popular models also backed the healthy growth of the compact SUV sub-segment, it said. 

The introduction of Hyundai Creta in FY16 has propelled the mid-size SUVs (length 4-4.4 m) segment. The mid-size SUV segment (24 per cent CAGR) outpaced the entire SUV segment and has grown its share within the mid-size SUV segment in the last five years.

Continued traction for the high-selling models like Hyundai Creta and Kia Seltos, as well as successful recent additions, including Maruti Suzuki Grand Vitara, Toyota Urban Cruiser Hyryder, and Honda Elevate, provided the thrust to the growth of mid-size SUVs, it added.