Maruti Suzuki feels the heat, loses market share

MUMBAI: It has been a classic case for the Indian passenger vehicle market in the last 5-7 years: if Maruti Suzuki sneezes, the market catches a cold.

So, the overall Indian passenger vehicle market fell into negative category in the quarter ended September with sales falling 3.6% year-on-year to 870,804 when Maruti Suzuki sales dropped 1% to 449,834. This after the industry grew by a whopping 22% to 873,501 units in April-June quarter, led by a 3% out-performance by the most dominant player.

Consequently, Maruti Suzuki, which has been single-handedly driving the Indian passenger vehicle market for many years now, saw its market share fall below 50% after almost six months to as much as 48.4% in October, down from its peak of 55% in April 2018.

Auto analysts attributed the slip to growing competitive intensity as well as portfolio fatigue. With the competition increasing, they feel that the past six years’ trend of rising market share for Maruti Suzuki will now be halted.

According to Credit Suisse, nearly 42.5% of the total volumes of the Maruti Suzuki could face competition this fiscal compared with 20% between FY15 and FY18. Such a high percentage of the total volumes facing competitive intensity is the highest since FY12. The rising competitive intensity has resulted in global wealth manager Credit Suisse downgrading its Maruti Suzuki stock outlook to ‘neutral’.

According to ETIG analysis, over the three to four years, nearly a quarter of the total incremental sales for Maruti Suzuki came from new models. Now, with the pace of new launches slowing, the volumes were impacted.

The fall in its market share has a direct correlation with its falling average monthly volumes. Maruti Suzuki posted two consecutive months of decline in July and August. And, in September and October, considered peak months of sales owing to festivities, the company could barely manage to meet last year’s numbers.

It registered its lowest monthly sales in 12 months in October. Several negative factors came together to pull down the overall market growth. While fuel prices and interest rates were hardening, floods in Kerala and drought in some parts of Maharashtra impacted sales during Onam and Ganesh Chaturthi, respectively. Then, a one-time increase in insurance cost impacted the sentiment severely in September.

Maruti Suzuki was also impacted by rival Hyundai Motor’s launch of the new Santro in October and lack of significant new product launches during this year’s festive season. Competition is rising in the entry-level segment and peers are offering cars loaded with rich features in the entry level. Maruti’s market share in the entry-level car segment has been coming down in recent years. It stood at about 63% during last fiscal against 72% in FY16, mainly due to competition from Tata Tiago and Renault Kwid.

Meanwhile, increasing premiumisation, as consumers upgraded to more expensive hatchbacks, compact sedans and compact SUVs from smaller cars, has helped Maruti to improve its overall average realisation per unit in the past three years. Average realisation per unit of Maruti stood at Rs 4.45 lakh in the second quarter of FY19, up from about Rs 3.85 lakh units a year earlier.

Sales of utility vehicles — the highest growing segment in the Indian passenger vehicle market — have seen moderation in the quarter ended September, when monthly sales volumes stood at 6% against an average of 21% in the preceding two years.

Just to underline why growth at Maruti Suzuki is important for the overall market, between FY12 and FY18, the Indian passenger vehicle market grew 23% to 3.28 million from 2.62 million. And, Maruti Suzuki accounted for a whopping 97% of the incremental growth of 658,000 units. That is, the company’s annual sales increased by about 637,000 in six years while the rest of the industry together could register sales increase of only 20,975 units.