Return of the small car may even draw rivals, says Maruti's RC Bhargava

Mumbai: Maruti Suzuki India Ltd, which sells two out of every five passenger vehicles in India, has said that the revival in demand for small cars after the goods and services tax cut could prompt even its rivals to reconsider the segment, long written off in favour of sport utility vehicles.

The company, which produces more small hatchbacks than all other carmakers combined, stated that many two-wheeler users, who were undecided about upgrading to a car, have been encouraged by the 10 percentage point reduction in GST on small cars to 18%.

Consumer response in the five weeks since the GST revision for vehicles less than four metres in length has challenged the common perception that the Indian market has changed and that even first-time buyers prefer to buy larger sport utility vehicles (SUVs) over cheaper hatches, said R.C. Bhargava, the company’s long-term chairman. “There are still a lot of people who want to buy small cars.”

The 91-year-old former Indian Administrative Services officer expects the trend to persist beyond the initial euphoria that drove Maruti Suzuki to record festive-period sales in October, adding that the company's long-term sales projections are bound to change.

“Many carmakers will realize what the nature of the market is, and I expect at least some of them to revise their product mix," said Bhargava, who has long championed small cars as a safer substitute to two-wheelers.

The share of hatchbacks in the Indian market has fallen from five out of 10 to just two between FY19 and FY25. Many popular entry-level cars costing around ₹5 lakh have been discontinued in India in recent years, including Hyundai’s Santro and Eon, and Tata Motors’ Nano. Newer entrants completely skipped this segment in the face of rising consumer appetite for SUVs, which also tend to accrue better margins for manufacturers.

Overall, Maruti Suzuki expects sales of all cars taxed at 18% to grow faster than those taxed at 40%. This includes SUVs shorter than four metres in length, including Maruti Suzuki’s Brezza, Hyundai’s Venue and Tata Motors’ Nexon. But these tend to cost upwards of ₹8-10 lakh, which is higher than the ₹5-8 lakh segment where Maruti Suzuki is the undisputed leader with models, including the Alto, Celerio, S-Presso and Wagon-R.

Between 22 September and 31 October, small cars accounted for 20.5% of Maruti Suzuki's total sales, up from 16.7% before the tax cuts.

The company's production team has been working Sundays for the past three weeks and intends to continue doing so to meet the surge in demand of the Swift and the Baleno, which are some of the pricier hatchbacks made by the company.

Maruti Suzuki was close to taking a final call on a fifth manufacturing plant in India, Bhargava said. The company’s existing facilities are at Gurugram, Manesar, and Kharkhoda in Haryana, and Hansalpur in Gujarat, which together produce over 2.6 million cars a year. The company sold 2.2 million cars in FY25, including about 330,000 units which were shipped overseas.

Bhargava guided exports of over 400,000 cars in FY25, led by the e-Vitara, its first electric car made in India and shipped predominantly to Europe.

Robust Q2 earnings

India’s largest carmaker reported a 7% year-on-year growth in its profit for the July-September period to ₹3,293 crore. Revenues increased by just under 13% to ₹40,136 crore.

The company sold about 551,000 cars during the quarter, about 2% more than a year earlier. In the domestic market, it sold 440,000 cars, 5% fewer than in the second quarter of the previous fiscal as customers deferred purchase between 15 August, when the GST cuts were announced, and 22 September, when the new rates were implemented.

This domestic shortfall was more than offset by a 42% surge in exports to 110,000 cars. A similar trend was observed at Hyundai Motor India Ltd, which disclosed its earnings on Thursday.

Maruti Suzuki’s profit margin fell by 40 basis points to 8.2% due to a rise in marketing expenses, higher discounts, higher material costs and investments in its latest manufacturing plant at Kharkhoda.

Its stock closed marginally lower at ₹16,191.9 on the BSE on Friday compared to a 0.55% dip in the benchmark Sensex, of which it is a constituent. The stock has returned over 44% gains so far this year compared to an under 7% rise in the Sensex.