Maruti’s race for market leadership hits a speed bump

Maruti Suzuki India Ltd is betting on launches focused on sport utility vehicles (SUVs) to regain lost market share in the passenger vehicle (PV) segment. The automaker’s weak presence in SUVs has weighed on its market share, which fell to 43% in FY22 from 48% in FY21. Maruti primarily operates in the entry level PV segment, which bore the brunt of subdued demand and elevated inflation. The semiconductor shortage made matters worse.

However, all is not lost. As the share of SUVs increase in the portfolio, there is potential for the product mix to improve. Media reports state that Toyota in partnership with Suzuki is likely to launch a new SUV in India. This indicates an imminent launch of a new Maruti SUV, analysts pointed out. Jefferies India expects one SUV launch each in 2022 and 2023.

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Further, supply side constraints are easing. The shortage of electronic components had only a small impact on production in May when the company reported a 2% sequential rise in domestic PV sales volumes to 124,474 units. On the margin front, softening in costs of commodities such as steel, aluminum, and precious metals offer some respite. Also, the favorable movement in yen-rupee is likely to provide a cushion to margins as sourcing costs reduce. In FY22, the company clocked a standalone Ebitda (earnings before interest, tax, depreciation, and amortization) margin of 6.5%, a multi-year low.

However, sustaining the growth in volumes would be key for significant margin expansion. There is a hurdle on this front. Rising interest rates are a cause for concern as higher EMIs could exacerbate the already subdued demand in the entry-level segment, said Mansi Lall, analyst at Prabhudas Lilladher. This could weigh on Maruti’s sales volumes, she cautioned.

Nonetheless, filling the gaps in its product portfolio bodes well for its market share outlook. Market share in the PV segment is highly correlated with product lifecycles, analysts at Motilal Oswal Financial Services pointed out. “Maruti benefits from its favorable product pipeline over FY14-19 with market share improvement of 9 percentage points to about 51%, benefit from the launches of Celerio, Ciaz, S-Cross, Baleno, Brezza, Ignis, XL6, and Espresso,” they said in a report on 14 June.

That said, peers Tata Motors and Mahindra & Mahindra have a strong foothold in the SUV market. Amid such high competitive intensity, it remains to be seen what kind of differentiating factors Maruti offers to capture market share.

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