Maruti Looking To Wheel Into LCV Segment

Maruti Suzuki is exploring the option of entering India’s fast-growing Light Commercial Vehicles (LCV) market, a leading financial daily reported. The company is currently working on the development of a two-cylinder 800 CC diesel engine for the passenger car segment.

The Indian LCV market has been thriving even in an environment which is extremely subdued. The overall Commercial Vehicle (CV) sales have been weighed down due to extremely poor demand for Medium and Heavy Commercial Vehicles (M&HCV) that has resulted out of a downcast investment sentiment, weak industrial growth, heavy capacity addition in the last 3 years and weak cargo volumes. The YoY sales growth of M&HCVs has gone down from 33.49% in FY10 to -16.34% in FY13*.

YoY Sales Volume Growth (%)

At the same time, the demand for LCVs has been extremely robust. Although there is moderation in the YoY sales growth, the segment is much stronger than M&HCVs. This has helped to provide substantial support to the CV market. Demand for these vehicles has been strong due to the development of infrastructure, increased road penetration and adaptation of the hub and spoke model (with M&HCVs running across highways and LCVs for distribution to smaller areas).

Tata Motors is the leader in this market, with a share of more than 50%. It has gained a large chunk and continues to do so because of its robust Ace range of vehicles. Mahindra too has a sturdy portfolio, with models like Gio, Maxximo and Genio. However, Mahindra’s pace has been reducing relative to that of Tata. For Mahindra’s LCV segment, the YoY sales volume grew by 36.86% in Apr 2012 as compared to 7.42% in Nov 2012. At the same time, Tata’s LCV sales grew at 8.84% in Apr and 21.47% in Nov. Ashok Leyland too has been able to make a mark with its model – Dost.

YoY Cumulative Monthly Sales Volume Growth (%)

Maruti Suzuki’s entry has the potential to disrupt this segment. It will add to competitive factors in the industry and tighten the position for existing players like Tata and Mahindra. Media reports are indicative of the company’s entry anywhere between 2015 and 2017.

Maruti could either develop an all-new platform or use the existing Suzuki pick-up truck platform used in South East Asia. Developing a product platform would definitely require it to incur capital expenditure. On the engine front, chances seem open with Maruti’s existing efforts towards engine development. In any case, if the company does enter the market, it is sure to benefit considering the prospects of LCVs and the likely positioning as compared to its peers.

*FY13 - April to November 2012