Compact Cars - Sales Analysis.

About 14 different Car/SUV manufacturers (or Brands), producing close to a 100 different models, sold about 2.8 million units over the last 12 months. Out of them 13 Brands offers about 41 different models in the Compact Category, which comprises of vehicles under 4000 mm in length and powered by a Petrol engine of < 1200 cc or a Diesel engine of < 1500 cc. This Category was specially created by the Indian Govt. about a decade ago by offering substantial Tax-concessions to vehicles meeting the above mentioned specifications. The year when this concession was announced, only the Hatchback cars or Small Cars belonged to this Category. Tata Motors was the first to launch a Compact Sedan in the form of an Indigo CS, with a shortened boot. The tremendous success of this model pushed even Maruti Suzuki and a few other manufacturers to trim the rear end of their popular Mid-size Sedans in the following years. This trend continues even today when we see Volkswagen recently announcing the launch of it's Ameo compact sedan, which is a shortened Vento!!

Over the last few years we have seen Car manufacturers come up with models specially designed to meet the regulations of the Compact Category and we now have 41 different models involving Hatchbacks, Compact Sedans and even a few Compact SUVs. It was not just about the vehicle's length. Some manufacturers even had to develop new engines to meet the 1200 cc Petrol / 1500 cc Diesel restrictions. Mahindra & Mahindra too, which was primarily into full size SUV & MUV space, created a downsized 1500 cc diesel engine to power it's downsized Xylo (called the Quanto) for it's maiden entry into the Compact Category. This model did not do much for the company. But M&M still launched a brand new Compact SUV, a micro-SUV and a re-designed Quanto last year to increase it's market share in the Compact Category.

The products in the Compact Category now span a price range of Rs.2 lakhs to Rs.10 lakhs, with the Nano, RediGo & Kwid near the lower-end

of the range and cars & SUVs like Polo GT, EcoSport, i20, etc. at the higher-end of the range. It goes without saying that Maruti Suzuki is a dominant player in this Category. This company has a total of 10 different models competing in the Compact Category, with Total Average Quarterly sales of just under 3,00,000 units. The two most popular models in Maruti Suzuki's portfolio are the Alto and the Swift Dzire, which together sell more than India's No.2 manufacturer Hyundai's Total sales in the Compact Category. That is the kind of domination Maruti Suzuki has in the Compact Category. It's market share has comfortably remained over 55% in each of the last 4 quarters, with the highest level achieved being 59.4% in Q3 of last Calendar Year.

Hyundai's Total Average Quarterly sales over the last 4 quarters stood at just under 1,00,000 units, with it's market share in this category hovering around the 18-19% level, the highest level achieved being 20.5% in Q4-CY'15, which included the festive season. The two most popular models from Hyundai's portfolio here are Grand i10 and the i20, which contribute over 70% of the company's Total sales in this Category.

The fastest growing manufacturer in the Compact Category is the Renault-Nissan Alliance, which also includes the Datsun brand. The stupendous growth of this Alliance started with the launch of the Renault Kwid just before the start of the

festive season last year. This model single-handedly brought the Renault-Nissan Alliance from a No.7 position in Q3-CY'15 to a comfortable No.3 position in Q2-CY'16. From sales of about 6700 units in Q3-CY'15 for Renault-Nissan Alliance, it has multiplied over 5 times to reach around 35,500 units in Q2-CY'16, with the Kwid alone contributing close to 25,000 units in the latest quarter. During this period, the market share of the Renault-Nissan Alliance jumped from a meagre 1.4% to a respectable 6.9%. In June'16, the Alliance has launched another potential volume boosting model, the Datsun RediGo. It's impact will be noticeable in the coming quarters.

Tata Motors has seen mixed fortunes during the last 4 quarters. It started with No.4 position & 5.8% market share. Then saw it's sales & market share dip for the next 2 quarters and even lost one position during Q1-CY'16, but has seen a sales & market share bounce back in latest quarter and now Tata Motors is now back to No.4 position in the Compact Category. The recovery in sales in Q2-CY'16 is completely attributable to the Tiago, which was launched in April this year. With 2 more new model launches lined up for the Compact Category from Tata Motors over the next 2-3 quarters, it will be interesting to see how the company manages to build on this sales momentum.

The No.5 position continues to be held by the American auto giant, Ford Motor. This company did not see much change in fortune despite the launch of brand new compact sedan the Figo Aspire in August last year, which was followed by it's hatchback variant Figo in September. The sales of both these models dropped to disappointing levels after the initial couple of months of launch. The company was mainly relying on it's compact SUV model EcoSport to bring in some decent numbers every month. Ford has launched a completely new marketing push for it's models in the month of May this year. The result was immediately visible with a substantial jump in dispatch numbers during June'16. This last-month jump helped Ford to recapture the No.5 position in Q2-CY'16, which it had lost briefly during the previous quarter.

The next in line is India's own SUV maker, M&M. It was virtually non-existent in this category until the launch of the newly developed TUV300 in October'15. It brought in respectable volumes in the initial few months & then the company followed it up with the launch of the micro-SUV model, the KUV100 in January this year. With KUV100 in the picture, the sales of the TUV300 started losing steam. M&M did manage to grab a peak market share of 4.5% and the No.5 position during Q1-CY'16, but is already showing some signs of weakness in sales with market share dropping to 3.8% in the latest quarter. M&M too needs to push it's marketing team to come up with a new aggressive campaign to rekindle the customer interest in it's relatively new models.

Honda has had exactly opposite fortune to that of Renault-Nissan Alliance over the last 4 quarters. From being a comfortable No.3 player with 6.9% market share in Q3-CY'15, Honda has seen its sales & market share drop substantially over the last 3 quarters. The biggest drop coming in the latest quarter, when Honda's market share has fallen to just 2.4% in the Compact Category. One really wonders as to how come a company with a brand name as strong as Honda and equipped with a decent product portfolio, is suffering so badly in the recent months. The company is saying that it has deliberately curtailed dispatches to allow the dealer-level inventory (mainly of Diesel cars) to be cleared first. That means the dispatch numbers in the previous quarters were piling up at the dealer level. Honda has reached this fate despite having launched a brand new Jazz and an updated Amaze last year.

Apart from these 7 manufacturers, Volkswagen, Toyota, Chevrolet & Fiat are also present in this category with 1 or 2 models each. But their combined market share is less than 3% currently. Volkswagen has recently launched the Ameo compact sedan, while Chevrolet too is planning to bring an updated Beat and it's compact sedan version too. Let's see if these new launches help their respective manufacturers to improve their market share to levels worth mentioning in the coming quarters.

Maruti Suzuki - Competition has started biting!!

I had discussed about super-expensive valuations of Maruti Suzuki Ltd's stock at current prices of over Rs.3600/- per share in my previous article. In this article I won't be getting into that part again. Here I will be focusing on the Sales performance of Maruti Suzuki in two crucial segments: Premium Hatchbacks and Compact Sedans.

In total, Maruti sells about 1 lakh cars every month. 38-40% of these are from the Alto & Wagon-R category. Another 35-38% comes from the Ritz/Swift/Dzire category. 10-11% comes from Omni/Eeco category. 5-6% from Ertiga/Gypsy category. And the rest is comprised by it's recent launches, i.e. Celerio and Ciaz, which is about 8-10% of total sales.

The Ritz/Swift/Dzire category brings in the maximum in terms of turnover & profits for Maruti Suzuki Ltd. And this is where the company is facing lots of competition from other manufacturers. Hyundai is particularly strong in the Premium hatchback segments with it's i10 Grand and i20 Elite models with the latter generating volumes that are getting closer & closer to Swift's monthly volumes, despite being larger and more expensive. Even the Grand i10 is doing pretty healthy volumes for Hyundai at over 8000 units every month. On the other hand, Maruti's Ritz is a dying product with the volumes having come down to less than 2000 units per month in the last couple of months. Hyundai & Maruti together control about 75% of the Premium Hatchback market with a tough fight for the No.1 spot. Tata Motors with it's Indica/Vista & the Bolt models is the distant third, but has seen it's market share improve from less than 6% in October'14 to about 9% in March'15.

In the following chart I have considered monthly market shares of Hyundai India, Maruti Suzuki & Tata Motors only, which together command around 85% of the total market.

Maruti Suzuki's market share has dipped sharply to under 34% in March'15 from levels of around 42% in Dec'14 & Jan'15. On the other hand Hyundai's market share has approached the 40% mark, beating Maruti Suzuki for the 2nd time in the last 6 months. In October, Maruti's Swift sales had seen a sharp dip mainly because the company was clearing older stock & introducing newer upgraded model in that month. But there was no such issue in March'15. Part of the reason is fall in sales of Ritz model and even Swift has seen a dip of around 15% M-o-M. Apart from Hyundai, even Tata Motors is gaining some strength, though the numbers are far lower. And the reason is not the newly launched Tata Bolt model, but the older Indica/Vista models. After sales dipping to less than 2000 units in Jan'15, the Indica/Vista models have seen a revival in sales to over 3700 units in Mar'15. Bolt has been a disappointment for the company in the first few months. We will have to wait & see if it is because of supply constraints or lack of demand for the model, in the coming months. It seems as if the advertising being done for Zest & Bolt models is pulling customers into the showrooms, but they are getting more impressed with the value-for-money offerings in Indica/Vista and the Indigo CS models.

Coming to Compact Sedans segment, Maruti's Swift-Dzire is the clear market leader with a huge lead. In fact, many a times, the Dzire does monthly volumes higher than even the Swift and this is even more profitable for Maruti Suzuki, which commands over 45% market share in this segment. The 2nd biggest player in this segment is Honda with it's Amaze, which has seen a smart revival in sales in the last 4 months, but still does less than half the volumes of the Dzire. Honda captured a little over 20% market share in March'15. Tata Motors came third with just under 15% market share with it's two models: Indigo eCS and the newbie Zest. Here too the older model is selling more than the newer one.

From the chart we can see that Maruti Suzuki's market share in the Compact Sedans segment has come down from over 50% level to about 45% in the last 3-4 months. But it's not due to fall in Dzire's sales. It's monthly numbers are quite steady. But the market is expanding due to increased volumes from other players. Look at Honda, which has doubled it's market share in the last 4 months. Tata Motors too is more or less steady near the 14-15% mark. Hyundai's Xcent too is doing steady numbers and it's market share too is hovering around the 10% mark. But there is something all these manufacturers need to worry about and that is the upcoming launch of the Ford Figo Aspire, which is a brand new Compact Sedan Ford has developed and will be manufactured at it's brand new facility at Sanand, Gujarat. Ford is aiming for healthy volumes from this model and the car also seems to be competent enough to do it. It's expected to be launched sometime in June'15.

Tata Motors too is said to be developing a new Compact Sedan on the 'Kite' platform, which could replace the existing Indigo eCS or add to the product portfolio. But it's launch is atleast a year away. But Tata Motors is on it's revival path and is looking at expanding it's dealer network, which had shrunk sharply over the last 3-4 years. And this time the company is serious about it's domestic car business.

In short, Maruti Suzuki has lot's to worry about the two segments which give it the maximum turnover and profits. And in such a situation, commanding such premium valuations for too long might not be possible. Many institutional brokerages have a Buy rating on Maruti Suzuki with target prices in the range of Rs.4000 to 4500. But I beg to differ. If the sales blip in March is anything to go by, Maruti could be struggling to post the 15+% growth that it needs to post to make the current valuations sound a bit sensible. And it's premium offering Ciaz needs to continue doing well.

( Click here for Maruti Suzuki's Results Summary Page. )