Home / Markets / Mark To Market /  SUV play will bring Maruti benefits but just not much

Maruti Suzuki India Ltd began the retail sales of its sport utility vehicle (SUV) Grand Vitara from 26 September. Even before the prices were revealed, customers were enthused about the product as evident from the bookings, which was more than 57,000.

Grand Vitara has been jointly developed by Toyota Motor Corporation and Suzuki Motor Corporation. This partnership has also launched vehicles such as Glanza, which is the rebadged version of Maruti's Baleno

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Grand Vitara has both mild and strong hybrid variants. The latter is priced between 18 lakh to 20 lakh on an ex-showroom basis. This is roughly at 3% premium to G and V variants of Toyota Hyryder, respectively. As such, given the aggressive pricing of Hyryder hybrids, it would have been tough for Maruti to price Grand Vitara hybrids at a discount. Maruti’s higher pricing may also have been driven by higher technology costs given that the strong hybrid technology is developed by Toyota, pointed out analysts at Kotak Institutional Equities.

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Also, even compared to Hyundai Creta’s top variant, Grand Vitara’s Alpha+ is priced higher. Maruti pricing its first strong hybrid vehicle at a premium to Toyota for its top end shows the former’s confidence in its own products, said Basudeb Banerjee, analyst at ICICI Securities.

Investors will watch how demand plays out. “It is also worth noting here that there is a sharp rise in auto loans of higher tenure in recent years. Accordingly, the EMI distribution over more years is not hurting the consumer much so the premium may not curtail demand," Banerjee said.

Better Grand Vitara sales would boost Maruti’s SUV volumes. It also helps that the company’s new Brezza is seeing increased acceptance in the market. These may add to the monthly volume run rate of 120,000-140,000 units. As such, rising SUV volumes may help the automaker regain its lost market share to an extent. Note that the company’s limited presence in SUVs has weighed on its market share in the wholesale passenger vehicle segment, which fell from 48% in FY21 to 43% in FY22. While market share may improve from here, a big jump would be far-fetched given the competitive intensity. There is a possibility of cannibalization by Toyota’s Hyryder in the strong hybrid SUV segment.

Nevertheless, in the near-term, the upcoming festive season could well bring more cheer. This coupled with easing commodity prices would boost earnings in the coming quarters. Also, margins would benefit from a weak yen.

While all this is good, rising traction for SUVs could pose a risk to the hatchback segment, where Maruti has a large presence. Here, weak rural demand offers no solace thus weighing on overall market share. Moreover, the uncertain element in this story would be the new and exciting electric vehicle (EV) offerings and how they are received. Maruti has been a laggard in EVs so far, which is a looming concern. As Kotak’s analysts said in a report on 27 September, “Given multiple born-electric EV launches by competitors with higher range in the coming years, rapid expansion of charging networks in top-10 cities and battery EVs being a superior technology than strong hybrids, we believe that the adoption of strong hybrids in the more than 15 lakh price point segment may not pick up significantly."

Maruti’s investors are sitting on decent gains with the stock having risen by 18.5% in the past one year, slightly beating the 16.4% gain in the Nifty Auto index. Sharp upsides in the stock may be capped unless volume growth or market share improves significantly.

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ABOUT THE AUTHOR

Vineetha Sampath

Vineetha Sampath is a chartered accountant and is experienced in the field of research analysis. She joined Mint's Mark to Market team recently and this is her first stint in journalism.
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