Maruti Suzuki Seeks To Shed ‘Small-Car’ Tag In Quest For 50% Market Share
Maruti Suzuki aims to restore its operating profit margin to over 10% in the medium term by selling more CNG cars and SUVs.
Maruti Suzuki India Ltd. is looking beyond its bread-and-butter small cars to recapture 50% market share in a country obsessed with sports utility vehicles.
The shift in strategy has come after a change in leadership at India’s largest carmaker—Kenichi Ayukawa recently made way for Hisashi Takeuchi to take over as managing director and chief executive officer of Suzuki Motor Corp.’s breadwinner. On Thursday, he hosted his first investor meeting to lay out the roadmap for his tenure.
SUVs were front and centre on his agenda.
The maker of the Alto to Grand Vitara aims to restore its operating profit margin to over 10% and sell more than one in two cars in India in the medium term. The first step to achieving that would be to maximise SUV production as the semiconductor supply normalises.
As on Sept. 30, Maruti Suzuki had a market share of 41.4%.
The Demand Is There
That demand for passenger vehicles is buoyant in India reflects in its order book. As on Oct. 31, the industry had a backlog of over 8,00,000 units, of which Maruti Suzuki accounted for 3,88,000. Against this backdrop, the company expects the sales momentum seen in 2022 to continue in 2023 as well.
The demand for utility vehicles remains especially strong, and the management indicated a belief that SUVs would account for over half of sales in the near future, Goldman Sachs said in a note on Friday.
Maruti Suzuki, at present, has only two models—the Brezza and the Grand Vitara—in the segment.
So, while the New Delhi-based carmaker enjoys at least 40% market share in India’s passenger vehicle space, its share in the SUV segment stood at just 12.5% in October. The upside, however, is the waiting period for these models. Back orders for the Grand Vitara, which was launched late last month, have risen to 56,000 vehicles.
“This is likely to increase the company’s sales mix of full hybrid vehicles and, with this, raise the average selling price and make a steady contribution,” JPMorgan Chase & Co. said in an investor note.
The new Maruti Suzuki Grand Vitara. (Photo: Vinay Khulbe/BQ Prime)
But What About Production?
Maruti Suzuki, which manufactures 2.25 million units a year, aims to increase its annual capacity to 3.5 million units by:
Expanding production at its Manesar facility by 1,00,000 units.
Using Toyota’s Bengaluru plant for 1,00,000–2,00,000 additional units
Putting into operation its new Kolkata plant.
“Suzuki believes this structure will allow it to secure its targeted 50% share of the Indian market in 2030 (total projected size: 7-8 million units),” Goldman Sachs said. “The company also sees the export business as promising and indicates a willingness to take a flexible approach to additional investment as necessary.”
The competition’s dependence on diesel powertrains is an opportunity for Maruti Suzuki as real-world driving emission norms kick in from April 2023, UBS Securities said in a note. As customers gravitate toward CNG and hybrid options, Maruti Suzuki aims to gain even further.
Maruti Suzuki has in recent months introduced CNG variants for its SUVs, marking the entry of gas powertrains in a segment dominated by diesel mills. “We therefore expect demand for CNG and hybrids to rise, with CNG being the preferred alternative in compact cars and hybrids in larger cars,” UBS Securities said.
It will have a bearing on the company’s profitability.
Maruti Suzuki is aiming for an operating profit margin of 10% by selling more CNG cars, SUVs, and CNG-powered SUVs, according to the management.
The weightage of CNG vehicles in overall sales rose from 17% in FY22 to 21% in the first half of FY23, according to Goldman Sachs. The company accounts for 71% of all CNG cars sold in India.
“The management expects increased sales volumes and improvements in the sales mix to help drive margins up further,” the U.S.-based brokerage said.
New Models And Premiumisation
In the medium term, Maruti Suzuki is focused on transforming its image as a maker of “economical vehicles” into a high-end brand that sells mid-sized and large SUVs.
"The company’s customer rating for its NEXA premium sales channel is on par with that of carmakers such as Hyundai Motors,” JPMorgan said. "Our focus is on company initiatives to transform Maruti Suzuki’s brand image in the medium term from ‘small/compact’ to ‘mid-range and above’.”
The company plans to maximise production of the Brezza and the Grand Vitara and also launch an SUV in a sub-segment ideal for Suzuki, taking rivals' product line-ups and other geographies into account, according to BofA Securities.
What Maruti Suzuki now needs is a compact SUV that sits below the Brezza in its portfolio—a competitor to Renault Kiger/Nissan Magnite and Tata Motors Ltd.’s Punch. With a Baleno crossover and a Jimny , that gap is simply waiting to be filled.