Maruti may have to take heart from rivals' incompetence

New Delhi: Global competitors’ inability to launch many “disruptive”, India-specific models may be a boon in disguise for Maruti Suzuki India.

Maruti continues to grapple with declining petrol car demand, very high discounts on its products, an overall weak domestic car market and flat exports so lack of competitive intensity could perhaps be providential in saving this company the blushes in the coming months.

Yogesh Aggarwal and Karthik Subramaniam of HSBC Securities and Capital Markets said in a note to clients this morning that an analysis of top global automobile companies present in India shows a lack of “many disruptive models that these companies could launch in India in the coming quarters … unless the OEMs develop models especially for Indian car market, the new model introductions in the coming years may be lower than in the past three to four years. Maruti has the highest exposure to first-time buyers in India and is well positioned to benefit from any revival in the car market in 2013.”

The two analysts point out that there are only few models which can be prospective threats to Maruti in the mini and compact segment.

“Most of the other cars (which global competitors would launch) are either too expensive for that segment or the OEMs like Fiat have very weak distribution and service reach. Furthermore, even in the identified cars, most cars need to be redesigned/ resourced to cut the price by nearly 30-40% to attract the mini and compact segment. This would remain challenging for the global OEMs. VW recently has indefinitely delayed its plan to launch UP in India due to its inability to reproduce the model at a lower price from the existing selling model.”

So not only does competition lack model fire, it also seems to be unprepared for the pricing strategy which Maruti has mostly successfully followed for its products.

The two HSBC analysts have considered Hyundai i30 and i40, Renault Clio, Volkswagen UP and Golf, Chevy Sail, Ford Focus, Fiat’s new Uno and Panda as some of the models expected by global OEMs in the coming months.

As of now, only a few bright sparks exist in the Maruti product portfolio - Ertiga and the newly launched Alto 800 - but concerns on declining petrol car demand could derail its well-laid plans going forward despite the company having adequately prepared itself for addressing the increase in diesel demand.

Not only are analysts happy with lack of competitive intensity for Maruti, the new Alto 800 is also getting rave reviews from them.

Though Umesh Karne and Manashwi Banerjee of Brics Securities noted in their report that Maruti has been under pressure to improve volumes in the micro and mini segments due to intensifying competition from Hyundai Motor India and Tata Motors. But they were all praise for the new Alto.

“The new Alto 800 entry level car could be the answer to stiff competition in the passenger car segment … pricing strategy for 800 (which starts at Rs 2.4 lakh) and improved mileage of its petrol version (23 kmpl) will attract customers who prefer diesel cars due to low cost of ownership.Maruti’s decision to launch CNG version of the Alto could be a pre-emptive measure against the probable launch of diesel Nano and existing diesel Beat.”

Nishant Vass and Venil Shah of ICICI Securities noted in their report that Maruti has lost close to 300 basis points in domestic market share this September versus last September to settle at 37%.

“Domestic market share has declined due to labour unrest leading to production lockout at Manesar and high petrol-diesel price differential increasing dieselisation in the industry,” they said.

Diesel car sales grew 40% during the September quarter in the industry against a decline of 20% for petrol cars. Maruti itself sold over 70,000 diesel vehicles against 1,00,000 units in June quarter. The company lost diesel production due to labour unrest at Manesar and this piled up orders, with 125,000 diesel cars on the wait list now. This also resulted in unusually high discounts for petrol cars at Rs 14,750 compared to Rs 11,650 in the June quarter.