IT’S been a rough ride for the country's largest utility vehicle maker Mahindra & Mahindra (M&M) over the past year or so with the company's core utility vehicles business under some amount of pressure. Consider the statistics: during FY15 M&M's total domestic sales stood at 434,652 units, down 9% over the previous year.
This shouldn't be surprising since the company has a presence across almost all verticals of the automotive business but is a leader only in the UV segment. For instance, in other segments like two-wheeler, trucks and buses, cars and tractors, either it sells low volumes or still runs into losses. It is only the UV segment where it commands the largest market share, which contributes to its bottomline as well as revenues. It was this bread and butter business, if one can call it that, which was under siege last year.
The UV segment contributes 60-65% to the company's overall revenues and it is here that the company's market share during FY15 declined to 37.4%, from 47% a year back. This is the lowest the company has touched in the last seven years. What's worrying for the company is the fact that during the year overall sales of the UV segment grew by 5.3% but M&M's sales declined 5.75% to 206,837 units.
The company as well as industry analysts attribute M&M's decline in the UV segment to the absence of compact sports utility vehicles – a new, cheaper form of SUVs – in its portfolio. The company says it is building its arsenal here and would soon recover the lost ground. But analysts feel that M&M by delaying launches in this space has ceded space to rivals like Honda Cars which has the popular Mobilio; Toyota Kirloskar's Innova, Ford India's EcoSport, Nissan's Terrano and Maruti Suzuki's Ertiga.
Pravin Shah, president and chief executive, automotive division, M&M conceded that most of the growth was in the compact SUV segment and it is unfortunate that M&M did not have any products in this space. “We are building two new platforms for our new products which will be launched in the compact SUV space in FY16,” Shah said.
However, given the advantage M&M has over its peers in terms of its sales and service and dealer network, once it has a couple of compact SUVs in its bouquet it stands a good chance to recover its lost market. Analysts say that M&M would be able to improve its volumes in the segment with the new launches and with a wide network of 150 dealers across the country. According to them M&M would be able to match the sales of a Renault Duster or a Ford Ecosport once its launches are in the market.
In addition to its new products the company will launch three refreshes and three new variants of existing products by the third quarter of the current fiscal. This includes the next generation Bolero, XUV 500 and a sub-4 metre version of XUV 500.
M&M also plans to launch Korando C —a compact SUV—manufactured by its South Korean subsidiary, Ssangyong Motors, in India, by December. Mahindra acquired Ssangyong Motors by buying 72% stake in the company in 2011.
Though the new products may drive volumes for M&M, the advantage which it earlier had due to its diesel engines may not be there anymore since the price difference between diesel and petrol has been narrowing. However, the company doesn't see this as a disadvantage. “We strongly believe that there is still space for diesel cars, especially in the utility vehicle market. Looking at customer preferences, we have started developing new diesel engines. We will come up with six new engines which will be used across platforms. Three of them will be developed by Ssangyong and the rest by M&M,” Shah said.
Though Shah and a few analysts remain optimistic on M&M, there are several who sound a note of caution. For instance, several analysts maintain that the outlook for M&M’s mainstay, rural markets, is not positive with the sales in rural India not picking up as result of decline in rural wages.
"The company indicated that the development cost of a new platform is R 1,000 crore. Since the compact SUVs would be priced lower than M&M’s current products, the break-even volumes for each new model would be higher than 3,000 units per month,” said a Deutsche Bank report.
"Baring the compact SUV segment there has been no growth in the SUV market. In 2016 competition in the segment will intensify and it will be tough for M&M to recover market share,” said an analyst with a foreign brokerage firm.
Some industry experts point out that M&M’s brand image of being a rural market player could pose challenges in attracting the suave urban compact SUV customer. The compact SUV market is expected to grow in the coming years but it is mostly concentrated in the urban markets and M&M as a brand is known for manufacturing vehicles for the rural markets.
"M&M is responding to changing industry dynamics, it is this time challenged by market leaders like Maruti and Hyundai in compact SUV segment, where M&M is a weak player. We estimate profitability of M&M’s utility vehicle business to be under pressure in the medium term,” said financial services firm Motilal Oswal in one of its reports on the company.
There are advantages and disadvantages and it remains to be seen as to how M&M resurrects itself in the domain where it ruled once.