Why has Maruti's market share declined in past five years? Nomura explains

Maruti Suzuki India Limited (MSIL), the country’s largest carmaker, has rolled out aggressive price cuts across its portfolio in a bid to regain lost ground in the entry-level car market, a segment that has witnessed major erosion over the past five years, analysts said.

 

On the bourses at 11:20 AM, Maruti Suzuki share price was trading 0.26 per cent higher at ₹15,860 per share. Meanwhile, in the past five years, Maruti Suzuki shares have surged 127.1 per cent, underperforming the Nifty Auto index, which jumped 234.84 per cent, but slightly outpacing the Nifty50’s 120.97 per cent gain.

 

According to Nomura, Maruti Suzuki’s decision to slash prices comes at a time when its market share has been under sustained pressure. “The higher price cuts in the entry segment are aimed at reviving demand, as this segment has been losing share due to shifting consumer preferences and low income growth. This has led to a decline in MSIL’s market share over the past five years, with the entry segment emerging as the most impacted category,” Kapil Singh and Siddhartha Bera of Nomura said in a note dated September 18.

 

 

The company announced reductions ranging from 2 per cent to over 21 per cent depending on the model. Smaller cars such as the Alto, S-Presso and Celerio have seen the steepest cuts of 13-22 per cent, while larger models like the Brezza, Grand Vitara and Invicto have received more modest reductions of 2-8 per cent. In July, average discounts on Maruti Suzuki cars were pegged at around 4.2 per cent, with entry-level vehicles on the higher end of the discount range.

 

Analysts at Nomura highlighted that Maruti’s cuts have gone beyond what the Goods and Services Tax (GST) revision implied. “Based on our calculation, while weighted-average price reduction due to GST should have been ~6.5 per cent, the company has taken an average price reduction of ~7.5 per cent due to much higher price cuts in the entry segment cars, Brezza and Grand Vitara,” it said. The note added, “The actual price reduction for consumers would depend on how the discounts are calibrated, which we will monitor.”

 

The rationale behind this strategy is clear that Maruti Suzuki wants to rekindle demand from first-time buyers, a segment that has been slow to respond despite attractive offers.  

But analysts cautioned that fundamental challenges remain. “In our view, this has not happened as: (1) income growth for this segment has slowed over the past few years, even as the cost of cars and cost of living have increased sharply; (2) car ownership comes with other costs, such as fuel costs, parking, tolls and maintenance, besides the upfront buying cost; and (3) the preference for SUVs is on the rise.”

 

For models such as the Brezza, Maruti Suzuki is going even further to stay competitive. “For the Brezza, the price cut of 8 per cent is more than the 3.5 per cent GST benefit to maintain competitiveness against competing models such as the Hyundai Venue and M&M 3X0, which enjoy an 8.5 per cent GST benefit,” Nomura said.

 

While the price reductions may support volumes, analysts at Nomura warned of near-term financial implications. “While this initiative may come at the cost of average selling price (ASPs) and near-term margins (~100bps impact), it has the potential to improve market share and operating leverage if consumer response is positive.”

 

The brokerage also flagged risks on the inventory side. “The company may also have to recognise inventory losses due to the higher price cuts. Moreover, all OEMs may have to bear the impact of compensation cess on their dealer inventory if it is not refunded by the government,” it said, adding that wholesale volume management in September could prove challenging since shipments will only begin from September 22.

 

Nomura’s base case, however, is that compact SUVs remain the most promising category for growth. “Our base case so far has been that the compact SUV segment holds the highest potential for share gain, as consumers may look to upgrade from hatchbacks to compact SUVs.”

 

Among its top picks, Nomura continued to prefer other automakers. “As discussed in our post-GST cut note, our preferred picks in auto OEMs remain M&M (Buy), Hyundai (Buy), AL (Buy) and TVS (Buy).”