Maruti Suzuki India Limited is betting on a launch focused on Sport Utility Vehicles (SUVs) to make up for the lost market share in the Passenger Vehicle (PV) segment. The automaker’s weak presence in SUVs has impacted its market share, which fell to 43% in FY12 from 48% in FY11. Maruti primarily operates in the entry-level PV segment, which has been hit by weak demand and high inflation. The lack of semiconductors made matters worse.
However, all is not lost. As the share of SUVs in the portfolio increases, the product mix is likely to improve. Media reports say that Toyota may launch a new SUV in India in partnership with Suzuki. Analysts pointed out that this indicates an imminent launch of a new Maruti SUV. Jefferies India is expected to launch one SUV each in 2022 and 2023.
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In addition, the supply side constraints are easing. Electronic components shortages had only a small impact on production in May, when the company reported a 2% sequential increase in domestic PV sales volume to 124,474 units. On the margin front, there has been some respite from softening prices of commodities like steel, aluminum and precious metals. Besides, favorable movement in yen-rupee is likely to provide a cushion to margins as sourcing cost comes down. In FY22, the company saw a standalone EBITDA (earnings before interest, tax, depreciation and amortization) margin of 6.5%, a multi-year low.
However, maintaining volume growth will be crucial for significant margin expansion. There is an obstacle on this front. Mansi Lal, analyst at Prabhudas Lilladher, said rising interest rates are a cause for concern as higher EMIs could add to the already weak demand in the entry-level segment. He cautioned that this could impact Maruti’s sales.
Nonetheless, filling gaps in its product portfolio bodes well for its market share outlook. Analysts at Motilal Oswal Financial Services pointed out that the market share in the PV segment is highly correlated with the product lifecycle. Benefiting from the launch of Celerio, Ciaz, S-Cross, Baleno, Brezza, Ignis, XL6 and Espresso, Maruti has seen its favorable product pipeline improve by 9 percentage points to nearly 51% in FY14-19 . He said in a report on June 14.
That said, fellow Tata Motors and Mahindra & Mahindra have a strong foothold in the SUV market. Amidst such high competitive intensity, it remains to be seen what differentiating factors Maruti offers to capture the market share.