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Market share concerns weigh on Maruti 
(Wed, 21 Jul 01:30 pm) 
 
Indian indices continued to trade range bound during the last two hours of trade. Stocks from metal and auto space are trading firm while stocks from the pharma and banking space are failing to garner investor favour.

The BSE-Sensex is trading up by 80 points while NSE-Nifty is trading 22 points above the dotted line. BSE-Midcap index is up by 0.3% while BSE-Smallcap index is trading 0.4% above yesterday's closing. The rupee is trading at 47.24 to the US dollar.

Engineering stocks are trading mixed with Crompton Greaves and Shanthi Gears trading firm while Emco Limited and ABB are trading weak. In a recent interview with a leading business daily, the management of Crompton Greaves has expressed concern over the high inventory level with the company as a result of non-pickup of orders by the end consumers. However, as per the company, projects of power T&D have started picking up in the last six months. Moreover order inflow for the company is up by 53% YoY during the quarter. This has led the company to believe that the customers are likely to pick up their previous orders in the next 2-3 quarters.

In terms of growth going forward, the company believes that industrial systems segment would grow by 18-19% YoY as there is a huge inflow into industrial capex. On the other hand, the consumer products business is expected to grow by 25-26% YoY. This means that on a standalone basis the company is expected to grow by 14-15% YoY in FY11. Overall, the outlook for the company is very positive for FY11. This is because of the large inflow of ultra high voltage equipment from various customers. In fact if all the orders that transmission authorities have planned materialize then the growth in FY12 would be higher than FY11.

Auto stocks are currently trading firm with M&M and TVS Motors leading the rally. The stock of Maruti Suzuki has not been in favour in the year till date. While the BSE-Auto Index is higher by about 9%, Maruti's stock is trading lower by about 12%. This is despite the company putting up a very strong performance in FY10. During the year, revenues and profits were higher by 42% and 105% respectively on YoY basis. However, the key concern looming over the company is of it losing market share. This is especially after taking into consideration the competition, which has intensified in recent times.

India being one of the fastest growing auto markets has interested a lot of international players to set up shop here. Many new as well and existing international players such as Hyundai, Volkswagen, Nissan, Ford, Toyota, Honda, amongst others have launched a number of new models and variants in the small car segment. This segment makes up nearly 80% of the passenger vehicle segment. Maruti has been able to cash in on its dominant position (market share of 50% and more) in the past. However, during the January to June 2010 period, it is reported that the company's market share has dropped to levels of 47%. While the company is still the clear winner in terms of market share, the possibility of this figure to decline is high. Whether the new entrants will be able to shake up the market significantly is something that remains to be seen.

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