M&M's new compact SUV, named Mahindra TUV300, is likely to face competition from Renault SA's Duster, Ford Motor Co's EcoSport and the Hyundai Motor Co's Creta that have gained popularity, especially in urban India.
Annual compact SUV sales in India are likely to rise to 970,000 vehicles by 2020, a four-fold jump from their level a decade ago, as per consultant IHS Automotive, which expects 550,000 such vehicles to be sold in the country in 2015.
Mahindra has been losing out on this boom, and now it hopes to reverse the trend with the new vehicle, which was unveiled in the western city of Pune on Thursday, combined with one more compact SUV launch expected later this year.
"The total SUV industry in India right now is about 45,000 to 50,000 a month roughly," Pawan Goenka, executive director at Mahindra, said at the launch.
"If this gives us a volume of additional 4,000 to 5,000 per monththen that is 8-10 percent of market share gained."
The starting price for the new vehicle would be 690,000 rupees ($10,379), the company said.
The automaker's passenger vehicle sales, dominated by SUVs, fell 12 percent in the year to end March while the industry's passenger vehicle sales rose 4 percent. In the first five months of the current fiscal year that started on April 1, Mahindra's sales fell 8 percent, while industry's passenger vehicle sales rose 7 percent.
With more urban Indians choosing global SUV brands for the new technologies and features they offer, Mahindra will need to launch new vehicles and look at pushing deeper into rural areas where it has a stronger hold, analysts said.
"It (TUV300) may help in incremental volumes but regaining market share of the past looks difficult," said Gaurav Vangaal, senior analyst at IHS. "They lost it and they may not regain it in near term."
In the year to end-March Mahindra's share of the utility vehicles market fell to 37 percent from 42 percent a year ago, according to industry group Society of Indian Automobile Manufacturers.
In the first three months of the current fiscal year, its share of the utility vehicles market fell 200 basis points from the same period a year ago to 38.5 percent, industry data showed. ($1 = 66.4800 Indian rupees)