India's top passenger car maker Maruti Suzuki seems to have hit all the right notes with its multi-purpose vehicle Ertiga it launched earlier this month. In just five days since launch, more than 11,000 units of the Ertiga, which the company calls life utility vehicle (LUV) have been booked, says Shashank Srivastava, chief general manager - marketing.
The company was targeting around 5,000 unit sales per month, when it was launched.
Srivastava told CNBC-TV18 the initial response for Ertiga has been very encouraging and it has flexible production lines to meet the demand.
A major reason for Ertiga's success is the pricing of the vehicle. While prices of other MUV/MPVs like Mahindra Xylo and Toyota Innova start upwards of Rs 8-9 lakh up to Rs 13-14 lakh, Ertiga's base price is Rs 5.89 lakh ex-showroom Delhi.
Maruti Suzuki has clearly benefitted with its pricing and no major competition in the compact MUV segment, say experts. Mahindra & Mahindra is expected to launch its mini Xylo later this fiscal.
"What differentiates Ertiga from other models is its value-for-money positioning, in our view…A customer gets a top end diesel variant of a 7-seater Ertiga at Rs 8.45 lakh (ex-Delhi) compared to Rs 10.50 lakh for a top end Xylo and Rs 13.50 lakh for the top end Innova," said Amit Kasat and Aniket Mhatre of Standard Chartered Securities.
The analysts expect Ertiga will be one of the key volume drivers for Maruti Suzuki, apart from Swift hatchback and the new compact DZire sedan in fiscal 2013.
Maruti Suzuki had a market share of 39% in fiscal 2012, when the company was present only in 85% of the auto market, according to Srivastava. This entry into the previously untapped MUV/MPV segment will only boost its share, he said.
Below is the edited transcript of the interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.
Q: What's the response been on Ertiga? What is it that you guys are targeting in terms of a monthly unit sale for Ertiga?
A: The Ertiga R Compact MPV was launched on April 12. It’s only been about five days or so. We have got very good initial response. I think it’s too early to say about the long-term prospects, but the initial response has been really good. We have over 11,000 booking now in just five days. So, it’s pretty good going at this moment, except that we have to wait and see over a period of time where the demand stabilizes.
Q: What about capacity? What can you deliver? If demand matches up to full capacity, how many Ertigas can you deliver every month?
A: We have a very flexible production line. While we do not have a specific number in mind, if we find that the demand stabilises at a high level, we have the flexibility to increase the production. So, it depends on where the demand stabilises. I think it’s too early to quote that figure.
Q: What's gone down well with the street is the fairly significant price gap between the product and other products like Innova? Is it just introductory pricing? Would you raise it after the initial month or two?
A: Yes, definitely we mentioned it very clearly at the time of our launch that this is absolutely an introductory price. This is the first time Maruti Suzuki is coming in this segment. That’s the reason we have this introductory price. We have had good demand. So, I am sure over a period of time we will see newer prices.
Q: It’s a pretty competitive part of the market though, at this point, what is the gap between your price versus your nearest peers? What's the plan in terms of how much you want to close it?
A: We look at it as an absolutely new segment. There is no compact MPV in the country today. So, we look at it as an absolutely new segment. Hence, we believe that there is no competitor near or far. But in the market it’s natural for people to start comparing with Innova. Innova starts at around Rs 10 lakh. Our starting price for petrol is Rs 5.89 lakh ex-showroom Delhi. So that’s a significant gap.
The ZDI, which is the top end diesel variant, is at Rs 8.45 lakh for us. It’s extremely competitively priced, but I repeat again that we believe we are in a different segment. This is about a lifestyle car, this is about individuals buying. This is something which is a city car, it’s designed for urban Indian families. So, we are in a different segment altogether.
Q: What did Maruti’s market share get to by the end of last month? How much do you think Ertiga will help in that direction, what is it that you hope that Ertiga will take your market share back to now?
A: Last year, our market share was close to about 39%, slightly less than that. We were hampered by many things last year including the supply of diesel vehicles, for which we had actually a long waiting list, we had waiting period in Swift and Dzire for almost six months. The waiting period still continues. So, we were hampered a lot on the supply side last year.
This year we have increased the supply for diesel vehicles for which we have a long pending list. At the same time, yes, Ertiga should increase our volumes and market share because the MUV segment is about 14.5% of the total market. Now, in 14.5% of the market, we were not present at all. In other words, our market share of 39% we were operating only in 85% of the market. So, any volume increase coming from this segment can only add to out market share.
It’s too early in the sense that while we had a great beginning, we are very delighted with the initial response. Let’s see where the volumes stabilise and may be then we will be able to project how much increased volumes and market share we will have through Ertiga.
Q: Can you even give us a ballpark target? I take your point it’s early day, but some of the investment banks are pegging it at 30,000 for the full fiscal. But do you think it could be closer to 50,000, the way initial demand patterns are?
A: We never put a number to it actually. It could be 50,000-60,000, it could be 70,000, it depends on what sort of demand pattern we see in the future. Our production lines are so flexible.
I’ll give you an example, it may sound slightly odd that we are not giving you exact volume picture. For example, when we introduced the new swift last year we were doing about 12,000 units a month. People asked us how much would you like to do and we said let’s see if we can go up. Today, we are doing more than 20,000 a month. Same is also with the new Dzire which was launched in February this year where we were doing about 8,500-9,000 units. But today we are doing 16,000-17,000 units. So, in other words, we are so flexible that if you find we have enough demand, we will always try to ramp up our production and so will be the case with Ertiga as well.