ET 500: Valuations confusing? Look at cos gaining market share

Ample liquidity has elevated valuations of most companies, making stock-picking difficult. While earnings recovery offers some clarity, that alone may not be sufficient to gauge a company’s future potential as most companies would see some recovery in earnings once demand improves. A better factor to consider is the growth in market share. Companies that have improved market share in recent months are likely to show better earnings growth. ET Intelligence Group lists five such companies.

Maruti Suzuki
Every second car sold in India is a Maruti. The company has been successful in breaking the perception of a small car company by selling high-end cars through its premium dealership network NEXA. Nearly half of NEXA customers are first-time buyers of Maruti’s cars. This has helped the company to improve average realisation.

Its first compact sports utility vehicle (SUV) Brezza, launched to target the fast-growing SUV market, accounts for nearly 20% of the total passenger car market. These two factors have helped the company grow faster than the industry in the past two years. Its market share increased to 50% in the first seven months of the present fiscal, compared with 47% in the corresponding period of FY17.

Ashok Leyland
The strategy of three ‘Cs’ has worked well for India’s second-largest commercial vehicle maker, Ashok Leyland, helping it gain market share in the medium and heavy-duty commercial vehicle (MHCV) segment. The three ‘Cs’ are: consumer, channel and company. The company’s market share in MHCV increased by 2% in FY17 over the previous year. In the past three fiscals, it has gained nearly 10% market share.

The market share in the MHCV segment in the first seven months of FY18 was 33%. The company increased its dealer strength to 2,200 from just over 500 three years ago. This increased customers’ engagement with the company. In addition, the company went beyond South and enhanced its market share through expansion of dealer network. The company also earned the confidence of fleet operators with the assurance of paying for their loss if downtime is more than eight hours. These factors have helped it enhance its marketshare.

Crompton Greaves Consumer
India’s largest fan maker has been increasing market share since 2007, growing to 27.6% in 2016 from 22.7% in 2007, according to Euromonitor, due to increased share of business from premium fans, which is growing more than the conventional fan segment. The company earlier lacked a diversified product portfolio, with fans and lighting contributing to about two-thirds to its revenue. With a new management, the company addressed the issue by launching premium products.

Voltas
Voltas, India’s largest air-conditioner manufacturer, has been able to gain market share by 200 basis points in the past one-and-a-half years. Its market share in room AC was 23% at multi-brand outlets in the September quarter, compared with 22.2% in the previous quarter. The company gained market share after its peer, LG, decided to exit from the fixed room AC segment. The AC segment revenue grew by 15% in the September quarter helped by restocking after GST implementation in July.

Amara Raja Batteries
Battery-maker Amara Raja has a market share of 32% in the four-wheeler replacement market, gaining nearly 200 basis points in the past two fiscals. Its four-wheeler battery capacity increased by 2.3 million units to 10.5 million units in the September quarter. It will rise by another 2.3 million units by the end of FY19. The company has 30% share in the replacement market for two-wheelers. Its volume from supplies to two-wheelers is expected to pick up as supplies to two major two-wheeler makers, Bajaj Auto and Hero MotoCorp, will start from the current fiscal.