Event update: Automobiles - M&M - Targeting white space in the UV segment

Mahindra & Mahindra (M&M) has launched Marazzo, its 7/8-seater multi-purpose vehicle (MPV). The MPV is built on a completely new platform and is powered by 1.5-litre, 4-cylinder turbo diesel engine. Priced at Rs1-1.4m, we expect the new launch to fill the white space between Maruti Suzuki’s (MSIL) Ertiga diesel variant (~10-15% cheaper) and Toyota’s Innova (the top variant in Marazzo is 10% cheaper than the base variant of Innova Crysta). The new launch would be important for Mahindra & Mahindra (M&M) to recoup its marketshare losses in the UV space, particularly in the backdrop of sub-par performance in its recently launched products (KUV1OO/TUV3OO).

Premium interiors; safety a focus: Marazzo’s interiors give a premium feel with a neatly laid out dashboard and good quality plastics. The touch screen interactive system, LED DRL, and roof-mounted air conditioning add to the premium feel. In addition, M&M has focussed on safety with ABS, 2 airbags and Isofix child seat mount, which is a standard across its variants. Management indicated that the company has used 52% of high-strength steel to improve safety in the vehicle. While the first and second rows have sufficient leg room, the third row seems a bit cramped.

Developed by R&D centre across the world: The Marazzo has been developed at a cost of USD200m in collaboration with Mahindra North American Technical centre, Mahindra Research valley Chennai and with designing inputs from Pininfarina (Italy). The vehicle currently has a 1.5 litre diesel engine with an ARAI mileage of 17.6kmpl. Management has indicated the launch of a petrol version at a later date. The Marazzo uses a body on frame chassis with a front wheel drive setup and a transversely mounted engine, which according to management offers comfort and handling close to a monocoque chassis.

Pricing – targeting a white space: M&M has priced the Marazzo at Rs1m to Rs1.4m to target the gap between MSIL’s Ertiga (Rs0.88m-1.07m) and the Innova (Rs1.5-2.2m). In terms of features, including the premium feel of the interiors, the vehicle seems to fall in between the two segments. As a result, M&M could target customers looking to upgrade from the mid-size segment.

Targeting upgrade customers: While we estimate M&M to sell ~3000 units of Marazzo/month, management is targeting 8,000-9,000 units/month between the Marazzo and its compact SUV, S201 (to be launched in H2FY19). If the targets for Marazzo sales volumes are to be ~4000 units/ month, it would need to claim ~9% of the mid to high MPV space (including the Ertiga, Innova) . Notably, management intends to focus on the personal segment (likely to contribute ~85% of total volumes) rather than cater to the fleet demand.

Our View: The Marazzo will be M&M’s attempt at regaining lost market share (the company has lost 1200bps market share in the UV space in last 5 years). Marazzo is a key launch, in our view, given the underperformance in recent products (KUV1OO, TUV3OO). While we remain concerned about the company’s UV portfolio from a long-term perspective, we do note that the strong product pipeline provides visibility for FY19. In addition, M&M’s tractor business will continue to benefit from the improvement in rural demand. Reasonable valuations (ex-subsidiaries ~14.5x FY20E EPS) provide added comfort. We reiterate Outperformer with a target price of Rs1,020.