According to research released on Friday, India’s passenger vehicle (PV) sector is expected to reach a new high this fiscal year, with a total volume of domestic and export sales surpassing 5 million units, despite the annual growth rate slowing to 2-4 percent.

This is the fourth straight year of record sales, according to a Crisil Ratings assessment, albeit the pace has slowed considerably from the pandemic-related 25% spike in fiscal 2023.

According to the analysis, new launches, lower financing rates, increased use of compressed natural gas (CNG), and rural tailwinds will all help utility vehicles (UVs) generate volume growth this fiscal year.

This fiscal year, PV growth will slow to 2-4 percent, while UVs will continue to climb at a pace of 10% thanks to new releases. The move toward premiumization is fundamental, since UVs account for 68–70% of volumes and majority of forthcoming models, according to Anuj Sethi, Senior Director at Crisil Ratings.

He noted that the demand for entry-level automobiles could increase due to the rural recovery anticipated from the predicted above-normal rainfall and the drop in financing rates.

Original equipment manufacturers (OEMs) will be able to easily finance their substantial capital expenditures while maintaining stable credit profiles and solid balance sheets thanks to healthy cash flows and a healthy cash surplus.

Eighty-five percent of the entire volume in the previous fiscal year came from the local market, with the remainder coming from exports.

The fuel mix is also changing quickly. Due to cheap operating costs and a rapidly growing network of more than 7,000 refueling stations, CNG-powered PVs are gaining traction and are expected to account for 15% of the market this fiscal year.

Although continuing geopolitical concerns may slow the pace of exports, the research recommended that OEMs switch to other markets including Mexico, the Gulf states, South Africa, and East Asia.

As OEMs increase capacity, speed up EV investments, and promote localization and digital upgrades, PV capital expenditures are anticipated to remain high at Rs 30,000 crore this fiscal year. However, with a capex-to-Ebitda ratio of 0.5x, this high expenditure is still sustainable due to robust internal accruals and cash surplus, according to Poonam Upadhyay, Director of Crisil Ratings.

In addition to increasing competition in the premium market, which makes up less than 10% of total volume, the introduction of international premium EV models, such as Tesla, is expected to reset customer expectations across all categories and force Indian OEMs to speed up technological advancements. Nevertheless, imports will be restricted by the high tariffs in place now.