Why Are Hero MotoCorp and Maruti Suzuki Underperforming the Market?

Did you know that 80% of all accidents that occur when climbing Mt Everest, the worlds largest mountain peak, happen on the way down.

That means that despite overcoming incredible odds, mind-numbing cold, a lack of oxygen, possible snow blindness, and incredible fatigue...almost all accidents and deaths occur after a climber reaches the summit.

They happen after the goal has been reached, after the triumph, after the celebratory satellite phone call, after spending months in preparation, and tens of thousands of dollars.

Tragic isn't it?

While reading this, it occurred to me that all our energy lies in achieving our goals, however, it is equally important to sustain the achievement.

I agree, making money be it in business or stock markets is a difficult thing, however what is more difficult is maintaining that wealth and growing it. The latter is often underappreciated in stock markets which are prone to bull and bear cycles.

Companies like Jet Airways and Kingfisher created a niche for themselves and were market leaders in their respective segments. While Jet Airways focussed on growing its leadership position, Kingfisher Airlines wanted to maintain its leadership in the premium air travel segment.

Two decades later, both failed miserably.

Every company creates a differentiating point or niche which leads to customer loyalty.

Take the example of Nokia and Blackberry. These two giants failed miserably, not because of competition but industry preferences changed.

While Nokia had a niche in keypad mass market phones, blackberry targeted corporate clients.

The problem was the industry preference changing to smart phones and touch screens. The competition didn't kill Nokia or Blackberry. The change in industry dynamics made them extinct.

Let me talk about two companies in India which remain market leaders in their respective industries but have lost market share over the past 5-7 years as the industry preference is shifting.

For the layman, Herp MotoCorp and Maruti Suzuki still command strong brand recall. However their numbers and stock price have a different story to tell.

Maruti Suzuki: Can New SUV Launches Help it Regain Lost Ground?

The domestic passenger vehicle industry is divided into small cars, sedans, and SUVs.

While headlines will say Maruti Suzuki is the market leader with a 40% market share, the reality is quite different.

A decade ago, the passenger car market was dominated by small cars followed by sedans while SUVs had a minor share.

Maruti's forte was the small car segment which catered to the mass market. Small cars accounted for 65% of the domestic market while sedans captured the remaining. Maruti Suzuki has always been the market leader in the small car segment in India with an 80% plus market share.

In fact, Maruti has carved out a niche in the small car segment due to its low cost and strong distribution.

However, the problem is this...

The share of small cars in India has declined from 65% in 2012 to 45% in 2022.

The obvious beneficiary being the SUV segment which accounts for 48% of the passenger car share as compared to 15% in the late 2000s.

Not only Maruti, but companies like Honda which ruled the roads in the sedan segment with its offering Honda City, seems to be in an existential crisis. The biggest casualties of the rise in the SUV segment have been small cars and sedans.

While the compact SUV segment was introduced in India by Renault and Ford giving them the first mover advantage, Maruti too tried to capture market share in this fast-growing segment.

But after some initial success in 2015-17, product life cycle fatigue lead to limited offerings.

Here's the situation now...

SUVs account for 48% share in the domestic passenger car market. Maruti's contribution from SUVs in its sales is barely 23%. This implies Maruti Suzuki's market share in the SUV segment is only about 12-13%.

Decent Growth in the Last Two Years has Not Moved the Stock

Most people attribute the stagnant stock price due to Maruti's strategy of not entering the electric vehicle (EV) space. I personally believe it's due to its weak positioning in the SUV market.

Time will tell whether Maruti's strategy on focussing on hybrids rather than pure EVs is a good strategy.

But the immediate concern of low market share in the fastest growing segment in the car industry needs to be addressed if the stock is to re-rate.

Hero: A Big Missed Opportunity

Hero is also another example of how it's the market leader in the two-wheeler industry but that implies absolutely nothing.

Its market share has declined from 45% a decade ago to 30% as of December 2022.

Its problem point is the same as with Maruti. Just like Maruti didn't capture a higher share of SUV sales, Hero too focussed on entry level motorcycles and did not have premium offerings.

The real problem point was the rise of the scooter segment. The quintessential urban middle class product which had similar pricing to the entry level motorcycles.

Hero's forte is the entry level motorcycle which were the 100-110 cc motorcycles. However, over the past 10 years, focus has shifted from entry levels motorcycles to premium motorcycles (125 to 150 cc) and scooters.

Hero is the market leader in the entry level segment but just like in Maruti, the entry level segment itself is shrinking.

Honda is the undisputed market leader in the scooter segment with over 60% market share. Hero may be the market leader in the overall two-wheeler market, but its share is on a declining trend.

This is why the stock has underperformed for many years. It's not because of the popular public perception i.e., being a late entrant in the two-wheeler EV market.

I believe both Hero and Maruti missed out on big emerging trends which played out over the last decade. What is the point of being a big shark in a pond while the pond transforms into an ocean around you?

Warm regards,


Aditya Vora
Research Analyst, Hidden Treasure