How will increased competition in the small-car space impact Maruti Suzuki India Ltd, which has over half the car market share?
Recent launches include Ford’s Figo and Volkswagen’s Polo, while Nissan’s Mirca is expected to hit the road in April.
Thankfully for Maruti, all of these launches will compete with its top-end models in the small-car segment, Swift and Ritz. These models, with engine capacity of 1.2 litres and above, account for around 20% of its domestic sales, according to analysts. A large majority of Maruti’s sales come from sales of the Alto, which will be unaffected by the new launches.
According to an analyst, while Maruti may lose some share in the 1.2-litre segment, it may make up for some of this because of new launches in another segment. It launched Eeco in the multi-purpose vehicle segment last year. In February, the multi-purpose vehicle segment grew at double the company average and accounted for 11% of total sales.
Graphic: Ahmed Raza Khan/Mint
Besides, Maruti still has the advantage of a much wider reach with its distribution network, and it would be a while before the new entrants work their way to smaller cities and towns. Their smaller distribution network means that it’ll be a few years before the full impact of all the new competition is felt. Having said that, it must be noted that the majority of the demand for the new launches will be in urban areas, where Maruti may end up ceding market share.
Some of these concerns seem to be reflected in the company’s share price, which is around 16% away from its 52-week high, even while shares of most other auto manufacturers are trading close to their highs. The auto index on the Bombay Stock Exchange hit a new 52-week high just last week and is currently only 1% away from those levels.
In Maruti’s case, another concern on the Street is that earnings are likely to be flat in 2010-11, even though volumes may grow at a healthy pace. This is because of a double whammy on costs as rising commodity prices coincide with the implementation of new emission norms from April. The firm recently raised prices after the hike in excise duty and may not be able to raise prices to cover the entire rise in costs in April. This will lower margins, say analysts.
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