Mahindra Bucks Slowing Car Sales With New SUVs, Holidays

By Siddharth Philip - Nov 2, 2012

Mahindra & Mahindra Ltd. (MM), India’s largest maker of sport-utility vehicles, is betting on new models and giveaways such as holidays to maintain its market position and buck a slowdown in car sales.
Industrywide SUV sales growth in India may accelerate to 50 percent in the year ending March 31, said Pawan Goenka, president of the automotive and farm equipment division at the Mumbai-based company, after expanding 17 percent in the previous year. The Society of Indian Automobile Manufacturers estimates domestic car sales to increase by as little as 1 percent this fiscal year.
Mahindra has introduced two new SUV models in the past two months to widen its lead over rivals including Tata Motors Ltd. (TTMT) and take advantage of a surge in demand for bigger passenger vehicles run on subsidized diesel. The company’s service quality improved the most among its peers this year, according to J.D. Power Asia Pacific, helping attract customers.
“The utility vehicle space is growing at a fast pace and Mahindra being a veteran in the field has used innovative products to generate sales,” said Rikesh Parikh, vice president of equities at Motilal Oswal Securities Ltd. in Mumbai. “Mahindra has been able to create interest in their products.”

SUV Demand

Industrywide sales of SUVs have climbed 56 percent in the six months ended Sept. 30, compared with a 0.3 percent decline in car deliveries, according to the automakers’ association. Mahindra’s sales of passenger vehicles including SUVs rose 31 percent to 156,082 units in the seven months through Oct. 31, the company said yesterday.
Maruti Suzuki India Ltd. (MSIL), the nation’s biggest carmaker by volume, said yesterday domestic passenger vehicle sales rose 8.5 percent in the same period.
Some Indians are choosing SUVs over sedans and hatchbacks as family vehicles because their higher ground clearance allows for use on pot-holed roads both in the city and rural areas.
The growth in demand for SUVs over the past few years has attracted a number of overseas companies from Toyota Motor Corp. (7203) to Renault SA to unveil models in the segment. Renault, which started selling its Duster SUV in August, said yesterday it sold 5,406 units of the model last month.
Toyota introduced refreshed version of its Fortuner earlier this year, while Tata Motors last month started selling a new version of its Safari Storme SUV. Ford Motor Co. (F) plans to introduce the EcoSport compact SUV next year.

‘Main Challenge’

The key test for Mahindra will be its ability to develop products in the next few years, according to Ashvin Chotai, London-based managing director at Intelligence Automotive Asia, said by phone.
“The main challenge is to see how much more growth they can get in the future and what will be the next growth driver,” said Chotai. “There isn’t that much competition in the SUV segment, so there will be rising competition.”
In September, the company unveiled the Quanto, a compact SUV priced at 582,000 rupees ($10,829) targeting hatchback and sedan customers. Maruti’s diesel-engined DZire sedan starts at 634,930 rupees, while the gasoline-powered DZire costs 517,798 rupees.
Mahindra, which last month started selling the Rexton SUV, aims to sell 500 units a month of the model, Goenka said on a conference call with investors on Oct. 25. This is the first model from Ssangyong Motor Co. (003620), which it acquired last year. The two companies will reveal the first jointly developed platform by 2015, Goenka had said on May 31.
The company has added features such as voice command operation of some functions and started a Purple Club for its XUV500 and Rexton customers offering holidays, special services such as a chauffeur on demand, and round-the-clock roadside assistance.

‘Value for Money’

“Mahindra is gaining from customers upgrading from hatchbacks and small cars for its Quanto and XUV500, as well as from rural demand for its UVs such as the Bolero,” said Ronak Sarda, an analyst with MSFL Institutional Research in Mumbai. “It has positioned products well at a value for money proposition, and with poor roads, many Indians are turning to UVs for family vehicles.”
Mahindra, excluding units, reported second-quarter profit rose 22 percent to 9.02 billion rupees, which beat analysts’ estimates. Sales increased 32 percent to 96.6 billion rupees.
Maruti’s profit declined 5.4 percent in the three months ended Sept. 30 after a deadly labor riot led to a monthlong production halt at one of its factories. Tata Motors will report earnings Nov. 7.
Mahindra rose 2 percent to a record 917.45 rupees at the close in Mumbai. The stock has jumped 28 percent in the past six months making it the best performer in the 10-company BSE Auto Index. Maruti, a unit of Japan’s Suzuki Motor Corp., has gained 10 percent in the period, while Tata Motors, the owner of Jaguar and Land Rover marques, has slumped 11 percent.

Waiting Period

Mahindra introduced its XUV500 model last year. It had a waiting list of three months on the XUV500 and two months on the Quanto, Goenka said on a call with investors on Oct. 25. The company had also begun exporting the XUV500 to South Africa, Australia and Italy, he said.
Bookings for the XUV500 had to be closed twice after the company was swamped with orders. Priced between 1.1 million rupees and 1.36 million rupees, the XUV500 initially received 8,000 orders in 10 days, and led Mahindra to increase production to 5,000 a month, from the initial 3,000 unit capacity it had set up.
“The Indian consumer is now realizing the versatility of an utility vehicle that offers great comfort, style and fuel efficiency,” said Goenka. “Mahindra has been the leader of the utility vehicle pack and our endeavor will be to defend our turf.”
To contact the reporter on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net
To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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