Honda Mobilio, Tata Zest can give Maruti a tough challenge

The launch of Honda Car India’s multi-utility vehicle Mobilio and the introduction of Tata Motors’ new sedan, Zest, in August, are likely to affect Maruti Suzuki’s (Maruti) volumes in the near term.

In MPVs, Maruti’s Ertiga, with monthly sales of 5,000 units, had very little competition in its price range so far.

But even though the latest launch from Honda’s stable starts at a 10 per cent premium to Ertiga, analysts expect it to take a toll on its Japanese peer.

There are signs of Maruti taking Honda Mobilio seriously.

It has been forced to offer discounts in select cities on the Ertiga and launch a special edition.

Mobilio, which is available at Rs 649,000-Rs 11 lakh (Rs 1.1 million), will also compete with the Mahindra Xylo, Toyota Innova, Nissan Elavia and the Chevrolet Enjoy.

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In the June quarter, Maruti’s share in the utility vehicle/van market was 27 per cent (across its UV portfolio), which is about 500 bps short of the market leader, Mahindra.

The launch of Mobilio is part of a broader Honda plan to grow its passenger vehicle sales by 30 per cent annually, over FY-14-17.

Honda’s president Takanobu Ito had announced that the company wants to sell 300,000 units by FY-17, more than doubling its sales from FY-14’s 138,000 units.

Zest on the horizon

While Maruti gets five per cent of volumes and about 10 per cent of revenues from the Ertiga, the more crucial challenge would be from the Zest.

It would be Tata’s renewed attempt at a segment where Maruti has its current bestseller, the Swift Dzire, ie. compact sedans.

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The model accounts for 15 per cent of Maruti’s volume sales and 20 per cent of its revenues, and unseated its erstwhile highest-selling model, the small hatchback Alto. Dzire also happens to be one of the most profitable products in Maruti’s stable.

Compact sedans (that sell 3,00,000 units a year) have seen good growth, with launches such as the Hyundai Xcent and Honda Amaze.

But Dzire has held its own to maintain market share.

The sedan has been clocking 16,000-19,000 units a month since January 2014, as compared to competitors (Amaze, Xcent sell about 12,000-14,000 units, put together).

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However, HSBC Securities and Capital Markets’ analyst, Yogesh Aggarwal, believes that Zest could limit Dzire’s volumes in the near term.

Further, the launch of Zest’s hatchback version Bolt could hurt volumes of Maruti’s small cars, too.

While the Indigo and Manza have had lacklustre sales, the Zest is the first launch on an all-new platform from Tata and would mark a watershed moment for the indigenous car manufacturer.

With the Bolt and Zest, Tata, which is launching new passenger models after six years, is looking at recovery in the space.

Its share has come down from 13 per cent in FY-12 to about four per cent.

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Discounts galore

Aggarwal says that the launch of Mobilio and Zest are risks to one-third of Maruti’s earnings in the near term.

The new launches co-incide with heavy discounts from Maruti, given the muted consumer sentiment.

Though it has indicated that discounts are likely to come down, thus far, they continue to head north.

The average discounts on its key models Alto, Wagon R, Swift, Dzire and Ertiga have increased from Rs 16,500-34,500 in January to Rs 22,500-57,500 in July.

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Always a tough fighter

Maruti has had a good track record of fighting off rivals with regular innovative launches and positioning.

Its launch this February -- the Celerio -- continues to have a waiting period of about four months, with the company increasing production to cope up with this.

After two quarters of year-on-year fall in volumes by four-five per cent, Maruti has recorded growth in sales of 13 per cent in the June quarter, albeit on a lower base. Analysts say, given its portfolio catering to various price-points, Maruti could be a key beneficiary if the economic revival gathers pace.

Analysts at Motilal Oswal say that the aggressive product launches by Maruti (14 launches in the last five years) will help it maintain/gain market share.

In fact, its portfolio has increased its passenger cars share to about 44 per cent.

Future launches will include the high-end sedan Ciaz and the SX4 Cross (compact SUV).