Due to changing consumer preferences and rising pricing for tiny cars like the Alto K10, India’s leading automaker Maruti Suzuki is turning to SUVs and electrified vehicles for its next stage of growth. Even though brokerages emphasized that margins are anticipated to rebound and demand is anticipated to remain stable moving forward, the automaker’s shares were trading flat on April 27 morning.
All About Maruti Suzuki’s Decision!
In Q4, Maruti Suzuki recorded an increase in its standalone net profit of 43% YoY to 2,624 crores. It is also the first auto firm to surpass the $1 trillion mark in annual revenue. Overall, its domestic volumes jumped 20.7%, driven mostly by utility vehicles and compact cars, and its FY23 revenue increased 33% to 1.18 lakh crores.
Maruti Suzuki’s stock underperformed the larger Nifty Auto index, which rose over 8% and 2%, respectively, in the past month and a pitiful 1.37% so far in 2023. An average of brokerage projections, however, implies that there is an upside of about 22% in the coming year, with the average target price being 10,355 and the current market price being 8,518. This is after the Q4 performance and forward-looking commentary.
In contrast, entry-level vehicles like the Alto K10 and S-Presso, which made up 14% of the company’s overall sales in FY23, only experienced a 10% year-over-year growth. This is not simply a Maruti Suzuki trend; it is an industry-wide trend. According to data from SIAM, small cars increased at a much slower rate of approximately 10% throughout this time, whereas utility vehicles expanded at a quick rate of almost 35% in FY23, passing the 2 million mark during the year.
For FY24, the small car market’s forecast appears to be weaker. The growth of small cars is predicted to remain flat, but Maruti Suzuki’s chairman RC Bharghava noted that he is “not losing sleep over it” during a post-earnings discussion with analysts. According to Bharghava, there are two causes for this: a significant change in consumer purchasing tastes that is reflected in the expansion of the utility vehicle market.
The second reason is affordability; compact cars have become more expensive over time as a result of factors including inflation and new regulations that raise expenses, among others. For example, the entry-level Alto K10 costs between ₹4.7 lakhs and ₹7 lakhs, making it out of many people’s price ranges in a nation. The Reserve Bank of India reported that the average annual wage in India was ₹3.88 lakh in 2021.
Bharghava joked that for the market for small automobiles to expand further, Indians must get wealthier. His forecast of flat growth in small car sales for FY24 also suggests a broader decline in the economy. Although this is the case, Maruti Suzuki is positioning itself for the next stage of growth with the addition of 1 million annual manufacturing capacity and a capital expenditure of 8,000 crore, which is 27% more than the capex spending of FY23.
Utility vehicles and electric cars will fuel the industry’s upcoming growth phase. In order to compete with rivals like Tata Motors and M&M, Bharghava stated that Maruti will introduce a number of new utility cars in the current fiscal year. In FY23 and Q4, utility vehicles made up 21% and 24% of Maruti Suzuki’s total domestic sales, respectively.
The automaker has also declared ambitions to introduce six new electrified vehicles by 2030. The business debuted a concept vehicle in February of this year, but the first production model isn’t anticipated to appear until 2025. By 2030, Maruti Suzuki projects that the percentage of electric vehicles pure and hybrid will reach 40%.
