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Mahindra and Mahindra Ltd’s core utility vehicle segment is under attack. The maker of the Scorpio and XUV500 models has lost its pole position in the segment to passenger car market leader Maruti Suzuki India Ltd, shows the latest data from auto industry body Society of Indian Automobile Manufacturers (Siam).

In the three months to June, while Mahindra’s market share in the utility vehicle (UV) segment dropped to 27.92% from 31.62% last year, Maruti’s share during the period climbed to 30.5% from 22.26% a year ago.

To be sure, the fall in Mahindra’s market share is not sudden. The automaker has been steadily losing ground to rivals for the past few years—first to the local arms of Renault SA and Ford Motor Co., which redefined the segment with the Duster and EcoSport compact sports utility vehicles (SUVs) in 2012, and more recently to Maruti Suzuki and Honda Cars India Ltd.

While Maruti has been able to hit the jackpot with the Brezza compact SUV offering from day one, the WR-V—another compact SUV launched in March this year—has helped Honda get a foothold in the competitive segment and increase its share to 6.60% in the quarter ended June from 3.84% a year ago, according to Siam.

From a peak of 55.59% in 2011-12, Mahindra’s share in the UV segment dipped to 47.67% in 2012-13, falling further to 41.72% in 2013-14 and 37.36% in 2014-15. New launches helped the company recover volumes marginally and inch up its share to 37.90% in 2015-16. The following year it dropped to 29.20%, the lowest in five years.

Rajan Wadhera, president, automotive sector at M&M Ltd, said the UV segment has seen almost 20 new product launches in the last five years, resulting in not only the expansion of the segment but also in its fragmentation. “Last year alone, the segment saw six new product launches at different price points. This is the key reason behind our market share decline.”

“In addition to this, there are some external factors which have not been conducive for us. For example, the increasing demand for petrol SUVs and our limited presence in this segment is one of the reasons,” Wadhera added.To be sure, Mahindra has been responding to intensifying competition from time to time by way of new launches, but the new models have not helped the firm arrest the decline in market share, leave alone recoup some of it.

In all fairness, by virtue of having a line-up that meets the parameters of a “genuine” SUV—high ground clearance, large engine, etc.—Mahindra has been a lot more susceptible to policy changes as compared to compact SUVs or soft-roaders. Be it the policy of levying higher taxes on passenger vehicles with high ground clearance or the Supreme Court’s stricture against large diesel vehicles in the National Capital Region in December 2015, Mahindra has been more impacted than its peers.

Two of Mahindra’s big-selling models—the Bolero and, to an extent, the Scorpio—are rural-centric. Rural distress impacted sales of the two models, said Mahantesh Sabarad, head-retail research at SBI Cap Securities.Maruti’s rise in the segment, on the other hand, has to do with urban-centric models. Moreover, its offering is not a UV in the strict sense of the term, he said.

“They (Mahindra) have been doing the right thing, but not right enough,” said Sabarad, adding the firm needs to rethink its distribution strategy. Unlike its rivals, most of its showrooms are not located in the heart of the city, which may have put off urban buyers.

Wadhera also said while demonetization had a negative effect in Q3FY17 and early Q4FY17, the recent months have shown that confidence is coming back in the economy and there are signs of an uplift in these segments going forward. He said Mahindra was the best equipped to gain market share as it was a full range UV player, with products ranging from Rs4.5 lakh KUV100 to the Rs25 lakh Rexton.

On the way forward, Wadhera said “We have a three-pronged strategy to continue our domination in the SUV segment.”

“Firstly we have a robust product and marketing plan to strongly establish our recently launched products such as the KUV100 & TUV300. Apart from this, we will also enhance our focus on our existing power brands such as Bolero, Scorpio & XUV500 and enable it to grow further. Finally, we will continue to launch key new products and refreshes which will help us increase our volumes in FY18 as well as regain the lost market share.”

He said the company has a detailed plan to significantly increase its reach across the country. This entails a strategy to increase existing rural penetration through focus on tehsils all over the country.

Commenting on the impact of steadily declining UV volumes on Mahindra’s earnings, an analyst at a domestic brokerage who declined to be identified said that the contribution of passenger vehicles (PVs) in the company’s overall earnings has been shrinking while that of tractors have been growing. This, he pointed out, is a worrisome trend, as PVs are a lot less cyclical as compared to tractors and commercial vehicles (CVs).

“It’s critical that the PV business maintains a healthy growth so that when the downtrend in either tractors or CVs sets in, PVs can make up for the volume loss,” he said.

Last modified on Wednesday, 12 July 2017

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