My Best Pick 2019

Gautam Duggad

Motilal Oswal Financial Services's head of institutional research believes a favourable product life cycle and better return through margin expansion will drive Maruti’s performance

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Published 2 years ago on Apr 26, 2019 5 minutes Read
Vishal Koul

It is a moment for nostalgia when I talk of Maruti Suzuki. As a child, not the BMW or the Mercedes-Benz, but the only car that would fascinate me was the Maruti 800 when the Indian roads were cramped with Ambassadors and Premier Padminis. A little more than three decades now, my fascination for Maruti has not ceased — as a car enthusiast and also as a research strategist. Indeed, Maruti has been making history year after year, trademarking its dynamic style along the way.

Today, Maruti is India’s largest passenger vehicle (PV) maker with over 50% market share. It probably is the only mainstream car maker in the world to enjoy such a high market share and attractive margins. A big push comes from its strong product portfolio-network, economies of scale and intent to lower the cost of ownership for customers.

Clutch, Brake, Stop!

The Indian PV industry has a huge runway for growth, considering the substantial under-penetration (around 2.5% of population) in the country. Moreover, aspirations are becoming achievable for Indian consumers, especially the millenials. However, the auto industry is cyclical and undergoing a downcycle led by a convergence of factors such as higher fuel prices, higher interest rates, insurance cost increase and the lack of new launches. The PV industry volume growth at 5.32% has nearly halved in 2018 compared with its past three-year average. The passenger car industry – including Maruti – is highly influenced by the crude cycle, not just in terms of demand but also profitability. This is the first inflationary period under t

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