M&M losing market share in UVs amid rising competition
Mahindra & Mahindra is India's largest utility vehicle maker with around 45 percent market (as of Q2-end). However the company seems to have lost some market share as rivals, domestic as well as foreign, have taken the cue and launched or are in the process of launching competitive products.
January 15, 2013 / 22:28 IST
Moneycontrol Bureau
Mahindra & Mahindra is India's largest utility vehicle maker with around 45 percent market share (as of Q2-end). However the company seems to have lost some market share as rivals, domestic as well as foreign, have taken the cue and launched or are in the process of launching competitive products.According to a report by Jefferies, M&M has lost 900 bps market share so far this financial year (2012-13). During the period, there have been several launches in the utility vehicle/multi-utility vehicle space like the Ertiga by Maruti Suzuki and Duster by Renault. Others like Ford (Ecosport) Chevrolet (Enjoy) will be launching their products some time this year."Mahindra has lost 900 bps of share in the UV market in FY13 year-to-date, but this has gone unnoticed due to the high growth. Competition is set to intensify as more new players enter the market over the next two years even as Mahindra's product cycle peaks," said Govindarajan Chellappa and Rajasa Kakulavarapu of Jefferies.In India, there is a huge differential in petrol prices, which are de-regulated, and diesel prices, which are still controlled by the government. That fuelled a huge drive of people opting for diesel vehicles over petrol. UVs and MPVs now together account for 29 percent of the total passenger vehicle market. M&M with its predominantly diesel UV portfolio consisting of the Bolero, Scorpio, Xylo and the newly launched XUV500, Quanto and Ssangyong Rexton saw its sales zoom.Year-to-date, M&M's passenger vehicle sales, which include utility vehicles and Verito sedan, have increased 30 percent to 2.03 lakh units. The growth has come at a time most other passenger car makers have seen slow growth."Relatively strong replacement demand, fuel price disparity and new product launches have been the primary drivers for the recent spurt in dieselisation," Chellappa and Kakulavarapu say.But now this trend of dieselisation may be peaking, the Jefferies analysts feel as the government works to contain subsidies. Various proposals have been talked about, including increasing diesel price at Rs 1 per month.The analysts say that almost all diesel vehicles, with a few exceptions like the XUV500, are now available on a discount, while petrol car sales have picked up. "We do not expect diesel vehicle sales to outpace the PV market from hereon. In fact, we would argue for some reversal from FY15 onwards and the pace of reversal would depend on how fast and how much diesel prices increase relative to petrol price," Chellappa and Kakulavarapu said.The analysts say that they "don't even for a moment doubt Mahindra's ability to innovate and launch new products" and having a presence across price segments gives it a permanent advantage to dominate the market. However, as rivals enter the market with a greater focus on UVs, market share loss is "inevitable." Apart from utility vehicles, M&M is also likely to see pressure in other areas. For instance, tractor market is set to remain flat in FY13 and grow only around 5 percent n FY14, the analysts say. They also expect "several years of losses" in the truck business as 4-5 new players vie for market share even as the overall market remains sluggish."We see trucks, two-wheelers and Ssangyong to be significantly cash flow negative over FY13-15," Chellappa and Kakulavarapu said, putting a "underweight" rating on the stock, with a target price of Rs 770.M&M shares were down 0.5 percent at Rs 930 in afternoon trading on Tuesday.Nachiket Kelkar
nachiket.kelkar@network18online.com Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
