Even as Maruti Suzuki India Ltd witnessed improvement in its November sales that escalated by 65% against that of October, the success spree carried out by rivals would surely pose a threat to its volumes and margins.
The sales volume of last month nosedived by 19% compared to the last year, tumbling to 91,772 units. Some of the factors responsible for the discouraging trends are high inflation and time-consuming process dedicated towards ramping up production, following the strike. But irrefutably, the main perpetrator is intensified competition that is prevailing in the entry-level car segment where Maruti wears the crown. The sales figures of the entry level petrol segment, in November, ruled by Alto hatchback, declined by 27% from a year ago.
According to a Credit Suisse AG report, Maruti emerged as the odd one among car makers operating India. “Excluding Maruti, car sales in India grew by about 35%. Maruti’s market share declined from 54% in November 2010 to 43% in November 2011,” it stated. Due to interminable hindrance in production and excessively extended waiting periods for a few models, giants like Hyundai Motor Co., Toyota Motor Corp. and Tata Motors Ltd have gained the obvious mileage.
Moreover, with untamed prices of fuels and sky rocketing interest rates that are in no mood to abet in the near future, Maruti’s compact car line-up, which contributes for three-fourths of total sales, is ought to be in the line of fire. This segment is known for being cost-sensitive and thus, due to revisions in both the cost of purchasing and running cost, it will receive serious blows. Moreover, Maruti's small car segment comprises a meagre populace of diesel variants, which have become the sole focus of buyers, owing to the hurting petrol prices in India.
The poor September quarter and October results, albeit majorly due to the labour strike, eventually downtroddened the company’s stock. Its shares have put up a poor show in both the Sensex and auto index of BSE since the last two quarters. Realising that the fiscal year 2012 is increasing proximity, it seems that the company is expected to sell-off at least 125,000 units per month in order to achieve the envisaged sales target. It is important to note that the target is 8% lower compared to the last year.
Surjit Arora, an analyst at Prabhudas Lilladher Pvt. Ltd says, “Investors could assess the situation after the December quarter, which is expected to be a washout both in terms of sales volume and profitability.”
Thus, Maruti Suzuki has to ensure that every step must be taken with utmost precision and intensive analysis of situations persisting in the market.
