Why brokerages are optimistic on Maruti's new crossover S-Cross

The traditional bastion of India’s largest car maker -- Maruti Suzuki, has been the small car segment in which it has been the undisputed mass market leader for several years. But, the moment this auto manufacturer ventures beyond the mainstay, analysts turn wary. Apart from the buyers perception on higher priced vehicle brands, history too do not support the company. The company in the past has launched several higher priced models such as Baleno, Vitara, Kizashi, which could not taste the success.

However, this old perception held by the analysts seems to subtly changing, thanks to the launch of S Cross -- the first premium crossover by the company. This can be gauged from the fact that Morgan Stanley and Credit Suisse, both MNC brokers, are expecting 30,000 to 35,000 units to be sold in FY16. The compact UV and sedan segment will sell around 25,000 units of vehicles in a month, which means nearly 10% of market share.

There are three reasons attributed to this change in the analyst community. First, it will be retailed through a new premium chain of dealership known as NEXA. Thus enabling it to fulfill the different aspiration of customers who are buying higher priced vehicles. Second, all three models launched earlier were 100% imported models, this inflated cost substantially and the company lost on the pricing front. On the other hand, S Cross is domestically produced, and the import content is quite less. Alsos, all the old models were petrol driven, while this segment is a largely a diesel fuel driven segment. Lastly, there is no real competing crossover present in the market currently, Etios cross, Fiat Avventura, i20 Active are all built on pre-existing hatchback platforms. Thus S Cross would be a category creator.

The company is expecting potential customers coming from sedan and B segments. Note that, B segment share in the passenger vehicle increased to 21.6% in FY15 from a mere 12.9% a year ago. This would help the company grab market share in relative weak segment in UV space, where it holds a market share of 12%.

Here is a snippet of brokerages' take on the S-Cross:

Citi
- Clearly different from existing Maruti models in terms of look & feel as well as power -Would determine how the Nexa initiative is and whether Maruti can compete outside its current domain

Morgan Stanley

-Expect the S-CROSS to clock volumes of 30-35k units in FY16 -A higher share of premium models will help Maruti benefit from the growing trend of customer uptrending Credit Suisse -Vehicle should meet our sales target of nearly 30,000 units -We believe S-Cross will grow the crossover segment -S Cross should give Maruti presence in nearly 5% of the market