 "Gujarat plant to help Maruti achieve 50% market share")
Maruti Suzuki, India’s largest carmaker, is set to grow its market share next year to 50 per cent from 47 per cent now, as the company’s Gujarat plant goes on stream early next year.
A capacity constraint has restricted the company from growing volumes in tune with demand, resulting in long waiting period for some of its best sellers. The situation will ease with the commencement of production from the Gujarat unit, being set up with funding from parent Suzuki.
The new plant, in the first phase, will add an annual capacity of 250,000 units to the existing capacity of 1.5 million units between the company’s two plants at Gurgaon and Manesar in Haryana. Even if 150,000 vehicles are produced and sold in the first year since the production is ramped up gradually, this number will form four per cent of the annual domestic market, estimated at 3.3-3.4 million units in FY18.
When asked about the possibility of a 50 per cent share in the domestic passenger vehicle (cars, utility vehicles and vans) market, Kenichi Ayukawa, managing director of Maruti Suzuki, said: “The capacity problem will come down next year. We will try to achieve that. But, others are also growing.” He added the company would start trial production by the calendar year, while actual commercial production from Gujarat would commence in January-February next year.
Maruti Suzuki is also undertaking an aggressive network expansion as it gets ready to sell the additional volumes from the new plant. It sold a total of 1.3 million vehicles in the domestic market in FY16 and exported 123,850 units. Its domestic share last year stood at a 14-year year high of 46.8 per cent. In FY16, it gained a 1.8 per cent share. A total of 2.78 million passenger vehicles were sold last year in the country. The company’s share this year has remained unchanged over FY16 due to capacity constraints, a pressure in entry segment bestseller Alto (from Renault’s Kwid) and a production loss of about a week due to disruption in supply of a key component.
Abdul Majeed, partner at Price Waterhouse, says the Gujarat unit will give Maruti ample space to manoeuvre production plans. “It will help the company gain further market,” he said without putting a number. According to Majeed, the company’s wide product portfolio and a significantly large sales service network give it a competitive advantage over other players.
Two of the company’s new products — Baleno and Brezza — continue to command months of waiting period. A new product, Ignis, is due for launch later this year.
The other positive trigger for Maruti will be the return of the rural buyer into the market on good rainfall. This segment was under pressure for two years due to deficit rainfall and an affected rural economy. The company gets about 30 per cent of its volume from rural markets. The increased wages of government employees will drive overall industry demand and grow sales.
Some analysts echo Ayukawa’s concerns on competition. “The industry can grow at a higher or lower rate to Maruti. We don’t know what will happen. There will be quite a few launches from others, too. While new products have worked well, Maruti has seen some pressure in the entry segment,” said Jinesh Gandhi, senior vice-president (research) at brokerage firm Motilal Oswal.
Maruti’s nearest competitor Hyundai, which enjoys a 17 per cent share, has not firmed up any capacity addition plans. “We plan to produce 0.66 million vehicles this year, of which 0.5 million will be sold in the domestic market. With current capacity, we can expand production to 0.7 million units next year,” said Rakesh Srivastava, senior vice-president at Hyundai.
A capacity constraint has restricted the company from growing volumes in tune with demand, resulting in long waiting period for some of its best sellers. The situation will ease with the commencement of production from the Gujarat unit, being set up with funding from parent Suzuki.
The new plant, in the first phase, will add an annual capacity of 250,000 units to the existing capacity of 1.5 million units between the company’s two plants at Gurgaon and Manesar in Haryana. Even if 150,000 vehicles are produced and sold in the first year since the production is ramped up gradually, this number will form four per cent of the annual domestic market, estimated at 3.3-3.4 million units in FY18.
When asked about the possibility of a 50 per cent share in the domestic passenger vehicle (cars, utility vehicles and vans) market, Kenichi Ayukawa, managing director of Maruti Suzuki, said: “The capacity problem will come down next year. We will try to achieve that. But, others are also growing.” He added the company would start trial production by the calendar year, while actual commercial production from Gujarat would commence in January-February next year.
Maruti Suzuki is also undertaking an aggressive network expansion as it gets ready to sell the additional volumes from the new plant. It sold a total of 1.3 million vehicles in the domestic market in FY16 and exported 123,850 units. Its domestic share last year stood at a 14-year year high of 46.8 per cent. In FY16, it gained a 1.8 per cent share. A total of 2.78 million passenger vehicles were sold last year in the country. The company’s share this year has remained unchanged over FY16 due to capacity constraints, a pressure in entry segment bestseller Alto (from Renault’s Kwid) and a production loss of about a week due to disruption in supply of a key component.
Abdul Majeed, partner at Price Waterhouse, says the Gujarat unit will give Maruti ample space to manoeuvre production plans. “It will help the company gain further market,” he said without putting a number. According to Majeed, the company’s wide product portfolio and a significantly large sales service network give it a competitive advantage over other players.
Two of the company’s new products — Baleno and Brezza — continue to command months of waiting period. A new product, Ignis, is due for launch later this year.
The other positive trigger for Maruti will be the return of the rural buyer into the market on good rainfall. This segment was under pressure for two years due to deficit rainfall and an affected rural economy. The company gets about 30 per cent of its volume from rural markets. The increased wages of government employees will drive overall industry demand and grow sales.
Some analysts echo Ayukawa’s concerns on competition. “The industry can grow at a higher or lower rate to Maruti. We don’t know what will happen. There will be quite a few launches from others, too. While new products have worked well, Maruti has seen some pressure in the entry segment,” said Jinesh Gandhi, senior vice-president (research) at brokerage firm Motilal Oswal.
Maruti’s nearest competitor Hyundai, which enjoys a 17 per cent share, has not firmed up any capacity addition plans. “We plan to produce 0.66 million vehicles this year, of which 0.5 million will be sold in the domestic market. With current capacity, we can expand production to 0.7 million units next year,” said Rakesh Srivastava, senior vice-president at Hyundai.