Maruti Udyog''s forays in to the B segment and exports

Mumbai: With support from parent, Suzuki Motors, Maruti Udyog Ltd (MUL) is working on developing a new compact car in the B segment for both the domestic and the export market.

Suzuki, Motors has shown greater interest in MUL giving a major fillip to exports. Suzuki also plans to aggressively introduce new products to increase market share. Suzuki, which now holds a majority stake (54.2%) in MUL, is likely to make the Indian operations a global hub for export of cars and components.

Cost cutting, value engineering are expected to lead to improvement in margins. MUL's margins are expected to improve to 12.8% from 7.1% in FY03 resulting from reduced royalty payments, vendor rationalization, backward integration to manufacture inputs, reduction in import content and discounts from Suzuki for some key components, says a report from leading broking firm Enam Securities.

MUL continued to be the market leader in the Indian passenger car space with an overall share of 54%. The company has a 100% market share in the A (small car) segment and 40% in the B segment. MUL is expected to maintain its near monopoly in the A segment on the back of M800 and the future launch of a knocked-down version of Alto.

In the B segment too, WagonR and Alto are scaling up well. The company has devised a new initiative into the used car business "True Value" to lock-in customers with the Maruti family, the Enam report said.

MUL dominates the A segment with its M800 model with a 100% market share. The segment, at 195,000 units per annum (accounting for 32.6% of total car sales in FY03), is estimated to be growing by 12-15% over the next two years.

The Enam report said that they estimate the share of the A segment to come down to 30% in FY04-05 on the back of a shift in consumer preference from M800 to B segment models driven by lower cost of finance and freebies offered by the B segment. Given the fact that MUL has the lowest cost of capital in the business, no competition is expected in this segment, at least for the next two years.

Though Tata Motors is aggressively pursuing its objective of launching a Rs 100,000 car, Enam Securities believe it would be a difficult proposition to achieve in the near term. To sustain its leadership in the passenger car market, MUL has entered into a strategic tie-up with SBI. Under the agreement, the tenure of car finance has been increased from three to seven years, thereby significantly reducing the equated monthly instalments (EMI).

At the current vehicle finance rate of 9.5%, the EMI for a seven year loan on an M800 works out to Rs 2,800 per month. The attractive finance schemes should give a volume push MUL's entry-level cars.

State Bank of Patiala and MUL are introducing schemes tailor-made for farmers in rural areas, whereby a buyer can pay his EMI every six months for an M800.

In the urban and the semi-urban markets, MUL plans to introduce a knocked down version of Alto, which will eventually replace the deluxe M800 model. The company is trying to gain further ground in B segment which is the fastest growing segment of passenger cars, accounting for over 53% of the total car market (312,000 units sold in FY03).

Three big players - MUL, Hyundai and Tata Motors - control an over 85% market share in this segment. It is estimated that this segment to grow by 20% over the next two years. MUL has a market share of over 40% in this segment through Zen, Alto and WagonR.