Shweta Mungremoneycontrol.comThe last fiscal year has been really good for India’s largest carmaker. It moved away from its small car fixation to focus on premium cars. And its bets seem to have paid off so far. With its market share nearing 47 percent, it is only a matter of time before it hits the half-way mark.
To say Maruti Suzuki is back in the driver’s seat would be stating the obvious. For nearly twenty years now, it has always had a near monopoly on Indian roads. And it is no secret that every second passenger car that gets sold is a Maruti.
So, why was FY16 spectacular for India’s largest carmaker?
A number of things, a richer product mix, lucrative new launches and normalisation of factory operations are some of the factors that are said to have put the company back on the map.
Maruti’s market share in its passenger vehicles segment jumped to 46.8 percent in FY16, a significant gain from 38.5 percent touched in FY12. After labour unrest and tool-down strikes at its Manesar and Gurgaon factories rocked the company four years ago, it has been busy clocking more miles than its rivals.
Korean carmaker Hyundai Motor, its nearest rival, is trailing far behind at about 17 percent, while Honda Cars India’s market share is at 7.2 percent.
Far and away, Maruti holds the lead at a time when motown sales have seen single-digit volume growth over the past few years.
It is getting only better for Maruti. Industry analysts expect a 200-plus basis points expansion in market share for Maruti over the next couple of years as new launches gain ground and the company expands its premium product-line Nexa dealerships.
“With entry into the compact utility vehicle segment, we see further upside to Maruti’s market share,” says a note by domestic broking house Motilal Oswal.
Other market dynamics have also played out well for Maruti. While industry-wide the diesel mix declined to 44 percent in FY16 from 48 percent in FY15, Maruti’s diesel volumes increased to 30 percent of its domestic sales. This was driven by the introduction of new diesel-only and semi-hybrid products such as the S-Cross, Vitara Brezza, Ciaz and Ertiga.
The company also managed to expand its presence in nearly 25,000 villages in FY16 from existing 1.4 lakh villages.
It plans to add 20,000 more to its network in FY17.
A favourable monsoon this year would give its sales a further boost.
Growing faster than industry comes with its own challenges though. There are tailwinds ahead. Double-digit sales growth forecast and 100 percent utilisation levels make expansion critical. In a recent interview to CNBC-TV18, RC Bhargava, former CEO and current chairman of Maruti Suzuki, acknowledged the challenge.
Maruti’s Gujarat plant, which will be run by parent Suzuki, will start manufacturing cars beginning 2017, ahead of its scheduled May date.
“Gujarat plant’s arrangement with the parent will make Maruti’s business asset light, freeing up management’s bandwidth to fortify its strength of marketing. We expect strong free cash flow (FCF) generation and return on equity,” a Motilal Oswal note said.
Another HDFC Securities note estimates a compounded annual growth rate of 12 percent in volumes during FY16-18 compared to 5 percent during FY13-15.
Given how Maruti passenger cars have sold like hot cakes — 1,429,248 units in FY16, which is a growth of 10.6 percent over the previous year — it seems the milestone could be within reach.
As for the half-way market share of 50 percent? Maruti could nail that, too.
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