As Indian customers aspire for more, car manufacturers have been forced to come up with new models to please them; a few years back the compact sports utility vehicle (SUV) or the premium hatchback didn’t exist but today it’s become a must-have if auto makers are to hold on to market share. Even in these tough times the market is not small; in FY15 around 2.6 million cars were sold, just 4% more than in the previous year and the run rate in the six months to September has been just short of 7%.
But the catchment is a growing one which is why no player—from Honda to Nissan and Volkswagon to Skoda—can afford to ignore it. The early bird, was of course, Suzuki which set up shop in India in 1983 as a partner of the Indian government. While it did have the first mover advantage, it is to Suzuki’s credit that it commands just short of 50% of the market today; that’s the highest share the company has held in nearly 14 years during which it has made sure to cater to customers across price points, in urban and rural areas.
Since January, Maruti has managed to sell more than one lakh vehicles per month in a market which is yet to recover from the economic slowdown that started nearly four years ago. Indeed, if one was to exclude Maruti’s volumes, sales last year would have fallen 1.6%.
Ajay Seth, Maruti’s chief finance officer (CFO) says his firm is looking to sell two million vehicles over the next 24 months. That’s a modest target really; analysts expect the car market to sell close to 1.45 million cars this year and 1.65 million next year.
And to achieve its goal, the Delhi-headquartered car maker is fitting its mini or micro segment cars with small diesel engines, arming the B-segment cars with automatic transmission systems and using hybrid diesel technology for the larger vehicles like Ciaz and Ertiga. Seth told analysts in a recent conversation the company would usher in more models to ensure quality was top class; it’s a long list with 20 models lined up over the next five years.
Indeed the company is taking no chances after its market share dipped to 38.5% and 39.2% in FY12 and and FY13 respectively. That was when Renault and Ford launched compact SUVs creating an entire new segment. Maruti, at the time did not have a small diesel engine which probably cost it some customers; the compact SUV has turned out to be a popular vehicle and now constitutes 40% of the SUV segment. Which is why Maruti is planning a complete overhaul of its product range across segments.
Sample this:
* Capacity for the small diesel engine has been upped to1.5 lakh units per month
* Capacity for automatic manual transmission systems has been increased to 8,000 per month
* Capacity for an additional 2,000 systems per month has been pencilled in The Wagon R will be fitted with a small diesel engine to cater to rural markets
* The Alto may also be fitted with a diesel engine
Randhir Singh Kalsi, vice president sales and marketing, Maruti Suzuki points out that a fairly number of customers in rural markets still prefer diesel engines as they drive long distances regularly. Maruti is hoping to be able to compete with Hyundai’s Eon, which comes with a diesel engine but isn’t distributed as well given that the Korean company’s dealership isn’t as large as Maruti’s. Eon’s volumes came off by 16.2% between April and August, just short of 27,000 units. Competing models such as Honda’s Brio or the Chevrolet are clocking run rates of less than 1,000 units per month.
Rakesh Batra, partner and national leader, automotive research, EY India believes Maruti’s strategy is a sound one.
“Some customers prefer diesel cars and Maruti is trying to fill the gap in its portfolio with new technology,” says Batra. But Maruti will be up against some tough competition in the compact hatchback and sedan segments; although Swift, Dzire and Celerio have helped Maruti hold its ground, the Honda Amaze, the recently launched Ford Figo Aspire—a compact sedan—the Ford Figo, a hatchback, and the Hyundai i10 could give it a tough fight. Given the popularity of the compact SUV and the premium hatchback—as seen in the success of Hyundai’s i20,Ford Ecosport, Renault Duster—Maruti will introduce a premium hatchback and a compact SUV by 2016. The former will compete with Elite i20 and the Volkswagen Polo, and be sold from the Nexa outlets. Later in the year Maruti hopes to arm the Swift and Dzire, both popular models, with automatic transmission. While the Swift clocked volumes of nearly 89,000 units between April and August, an increase of 9.61% y-o-y, the Dzire’s volumes increased by 5.16% y-o-y to 87,198 units.
Amit Kaushik, country head, Jato Dynamics, a UK-based automotive intelligence and market research firm—says Maruti’s strengths are its wide dealership network and customer loyalty which together with a good product pipeline will help it to hold on to market share. The firm’s new sales channel—Nexa—is yet to take off but experts believe it’s a good move. Kaushik says selling products from Nexa is part of the brand building exercise.
Maruti’s focus on hybrid diesel technology is also a plus, say experts.The mid-sized Ciaz was the firm’s first hybrid car and now the same technology will be used for the multi-purpose Ertiga. Hybrid vehicles are environment friendly and efficient; companies also stand to gain from the government’s incentive of Rs 30,000 to customers as a part of its initiative to promote hybrid vehicles. A hybrid utility vehicle will attract an excise duty of 12% compared to 30% levied on an SUV, making the vehicle more affordable. In the five months to August, volumes of Ertiga fell 6.20% y-o-y to 23,397 units.
Abdul Majeed, partner, PriceWaterhouse Coopers, believes new car buyers are conscious about emission norms and the environment. “However, customer preferences in the urban market are different from the ones in rural market, and Maruti needs to develop multiple products to win them over,” says Majeed. Maruti will also launch its first light commercial vehicle by March next year taking on Tata Ace. That will be another first for the country’s leading carmaker.
In Q1FY16, Ebitda margins at 16.9%, probably hit an all-time high, drawing support from fall in commodity prices. Analysts says margins could get even better which is why the stock has been an outperformer returning 47% over the past year compared with 1.3% for the Sensex. Having posted revenues of Rs 49,971 crore in FY15, Maruti should report revenues of close to Rs 58,000 crore this year selling more than 1.45 million units. The big jump is expected in FY17 with analysts estimating revenues of Rs 69,000 crore plus—on the back of 16% jump in volumes—and profits of close to Rs 7,600 crore over an estimated Rs 5,800 crore this year. Competitor’s envy, owner’s pride.