A lower base last year — S-Presso was launched in September — helped mini segment sales grow 95 per cent year-on-year (YoY). This, coupled with a 14 per cent gain in the compact segment, led to overall PV sales growth of 21 per cent in August. What has aided the firm is the fact that a third of its sales comes from the rural segment, which has been lesser affected by the Covid-19 pandemic.
Despite the recent volume uptick, Priya Ranjan of Antique Stock Broking believes the optimism behind the rally is likely to fizzle out. He cites two reasons for this. The first is the rising share of utility vehicles
in industry volumes with Maruti being a weak player, and increasing competition from Tata Motors and Renault in its core hatchback portfolio. Despite a 70 per cent share in the entry-level segment (customers are downtrading to lower priced cars), the company’s retail market share has been at the 50-per cent mark over the past two months.
Moreover, the reasons for Maruti’s stock gains over the last few years — such as market share increase, premiumisation, margin expansion, and valuation re-rating — might not play out going ahead.
Macquarie Research highlights that premiumisation has been lower in the last three years than historical levels. The other challenges include heavy dependence on Baleno, which accounts for 70 per cent of Nexa channel volumes, and lack of a diesel option in the mid-to-large sports utility vehicle segments and vehicles used for commercial applications. MSIL’s utility vehicle market share is 25-30 per cent.
Given the lower volumes, operating profit margins have been under pressure. This is likely to continue because of higher share of the entry-level segment, discounts, and rising raw material prices. Antique estimates MSIL’s operating profit (earnings before interest and taxes) margin to remain in 6-7 per cent range for the next three years.