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Utility Vehicles: Surprise package - Views on News from Equitymaster
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  • Jun 29, 2002

    Utility Vehicles: Surprise package

    Judging by the rally in the auto sector, markets seem to be quite bullish on future growth prospects of the industry. But attention is paid only to high-growth segments like passenger cars, commercial vehicles and two-wheelers. While others like tractors, utility vehicles and light commercial vehicle seem to be out favour this season. Moving away from focus area of market, we analyse the performance of the UV segment in FY02 and the industry structure.

    Utility vehicles, as we know traditionally in India, are basically diesel-driven vehicles, which are primarily led by demand in rural areas. They have been used as an alternative transportation with cargo carrying as a key utility. There are various sub-categories within the same segment viz. hard tops, soft tops and pick-ups. Over the last two years, due to change in select state government legislation, demand for soft-tops has been subdued. But at the same time, one important shift is slowing taking place in this category.

    UVs-Market share at a glance...
    Company FY97 FY98 FY99 FY00 FY01 FY02
    M&M 71.6% 52.2% 58.0% 58.7% 44.9% 46.2%
    HM 3.1% 6.6% 4.1% 2.2% 1.9% 2.7%
    Maruti 2.7% 2.6% 4.5% 7.3% 4.9% 4.8%
    Bajaj Tempo 8.6% 5.8% 5.3% 5.1% 3.9% 4.2%
    Telco 14.0% 32.7% 28.0% 26.7% 24.4% 21.7%
    Toyota - - - - 20.0% 20.4%
    Source: M&M's website

    Increasingly, UVs are being looked like a substitute to passenger cars with players focusing on launching new models based on petrol-powered vehicles. In the international markets like US, UVs contribute to a larger chunk of automobile sales. The success of Toyota Qualis, Tata Safari and more recently Mahindra Bolero are a clear-cut example of the transition in the sector Though a greater portion of demand still arises from diesel powered vehicles, basically in rural areas, which do not have proper road networks. But it is not the case with metros. Since traveling and leisure are also gaining acceptance, manufacturers opine that urban population is looking at a bigger vehicles. In response to customer demand, Telco has already launched ‘Sumo Kingsize’ and Mahindra’s ‘Scorpio’ is positioned on similar lines with value-for-money proposition.

    Given the backdrop of the demand drivers, consider the performance of the UV segment in FY02 and the trend in market share. There are 6 major players in the MUV market in India. 95% of UVs manufactured in the country are used in domestic markets while the rest are exported. Industry volumes have grown at a CAGR of 5% in the last six years to 122,561 units in FY02. But if we analyse the performance over the last three years, volumes have remained stagnant. As we mentioned earlier, while demand for UVs has shown an upward trend in urban regions, due to a poor farm sector volume growth has declined in rural areas.

    Coming to the market share of the key players like M&M, Telco and Toyota, M&M continues to lead the pack with a commanding 46% share, as of March 2002. However, this is considerably lower than 71% in FY97. Telco made a big dent in M&M’s market share post FY97 with the overwhelming success of ‘Sumo’. But in FY02, the slide has reversed with M&M gaining an upper hand (Telco’s market share was lower by 300 basis points to 22% in FY02). The not-so-surprising winner in the UV segment is Toyota’s ‘Qualis’. Within a year of launch, the Japanese major garnered 20% market share and has consolidated its presence in this segment. But M&M’s new model could prove a threat to Toyota’s market share in FY03 in light of an aggressive pricing strategy. Off late, we have also seen a number of new models being introduced in the high-end of the UV segment, which include Mitsubishi’s Pajero. Hyundai, Mercedes Benz and Maruti are also slated to unveil their models in the second half of FY03, which could spruce up overall volume growth of the segment.

    Not only is there a huge demand potential for such vehicles in India, exports offer a much-bigger market simply because of the reason that UVs account for as high as 50% of sales of light vehicles in international markets. M&M is already looking at exporting its newly launched model (Scorpio) to China. Tata Safari, reportedly, has been well received in the European markets.

    Considering future growth prospects of the industry, as we have mentioned above, there is lot of steam left in this segment and after passenger cars, UVs could be a big surprise for the markets. We expect demand for UVs, especially petrol-powered vehicles, to remain robust in the medium-term with Toyota and M&M well placed to capitalize on any upturn. While Tata Safari’s volume growth has been impressive, Sumo is clearly losing its sheen. Besides, the price difference between Safari when compared with models like Scorpio and Toyota is significantly higher and this could be a disadvantage for Telco. Overall, industry volumes are expected to grow at around 6%-7% in FY03.



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