Home / Markets / Mark To Market /  The only drag on a racing Maruti Suzuki India Ltd

The recent festive season ended on an upbeat note for the automobile industry. Year-on-year volume growth in October will be healthy given a favourable base. But vehicle registrations for passenger vehicles (PVs), trucks, and tractors were higher by 35-66%, even compared to the 2019 festive period, according to Jefferies India.

Moreover, the PV wholesale volume numbers in October are expected to maintain the momentum. Maruti Suzuki India Ltd’s volumes for last month are likely to grow by 12% versus October 2019, according to Jefferies. However, volumes would remain steady sequentially as September was boosted by pre-festive channel filling.

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The automaker’s new launches such as Grand Vitara would add to volumes. At the end of the September quarter (Q2FY23), Maruti’s pending customer orders stood at 412,000 vehicles, of which 130,000 bookings were for new models. More than 35% of total Grand Vitara bookings were for the strong hybrid variant, implying robust demand for premium products. This bodes well for Maruti’s realizations hereon. Q2 average realisation was up by 2% sequentially to 551,677 per vehicle.

The automaker plans to launch more vehicles in the sport utility vehicle (SUV) segment. Investors in shares of Maruti would do well to closely track the sales volumes of new vehicles.

“The success of Grand Vitara, which will be judged over a six-month period, is one of the key catalysts for the Maruti stock, as this vehicle opens a new price point at which Maruti can sell its vehicles," said Kumar Rakesh, an automobile and technology analyst at BNP Paribas Securities India.

Maruti’s SUV play will also help the automaker regain market share, which continues to be a cause for concern. In Q2, Maruti’s market share in the domestic PV segment was below 42% versus 48% in FY21.

“We believe it will be challenging for the company to cross the 45% market share levels because of a lack of diesel offering in the mid-size SUV segment as well as premium pricing of its strong hybrid variant versus Toyota’s offering," said analysts at Kotak Institutional Equities in a report on 29 October. Also, the launch of the compressed natural gas variant of Carens by Kia Motors will weigh on Maruti’s market share in the mid-utility vehicle segment, they said.

Overall, the prospects for the SUV segment are bright and Maruti’s margin trajectory is improving due to softening commodity costs and favourable forex. The only pressing worry for Maruti now remains the tepid demand in the entry level segment, which constitutes a large portion of Maruti’s volumes. Here, a higher discount may be required to boost sales, but this may weigh on margins.

Chip shortage is another looming concern for the industry. Maruti’s order book is much higher than the average monthly production run rate, pointing to supply chain constraints hindering production. In Q2, production of 35,000 vehicles were impacted by chip shortage.

Nonetheless, the order book tells us that demand for Maruti’s products is solid. The automaker plans to expand capacity.

“Historically, Maruti’s capacity ramp-up has been in line with the demand scenario. The capital expenditure plan is a good indicator of the demand environment," said Varun Baxi, analyst at Nirmal Bang Equities.

Meanwhile, shares of Maruti Suzuki continued to ride on the momentum seen after the announcement of Q2 results on Friday during market hours. They hit a 52-week high of 9,769 apiece on Monday. Failure of new models or the inability to recoup lost market share would throw cold water on investor sentiment.

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In Opinion, V. Anantha Nageswaran & Gurwinder Kaur tell why MSMEs survived the pandemic. Are we axiomatically immune to a global recession? Madan Sabnavis answers. Rajani Sinha tells what can anchor Indian economy amid a global shake-up. Long Story lays bare an ambitious plan to speed up India.


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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