Bloomberg News

Mahindra Bets on Decade-Old Bolero to Beat Tata: Corporate India

April 25, 2013

Mahindra & Mahindra Ltd. (MM), the maker of the Bolero utility carrier, is betting on the decade-old model to help it overtake Tata Motors Ltd. (TTMT) as India’s third- largest seller of passenger vehicles.

Demand from small towns and villages in the world’s second- most populous nation will drive sales of the Bolero, according to Pawan Goenka, the president of the company’s automobile business. Deliveries of the passenger variant of the Bolero rose 17 percent to 117,665 in the year ended March 31, while those of the Bolero and Genio pickup truck models surged 41 percent, data provided by the Society of Indian Automobile Manufacturers show.

Rural incomes in India have increased an average 18 percent in the past six years, according to the central bank, boosting demand for the Bolero to transport people, grains and Hindu deities. Rising sales in countryside areas and lack of competition may help Mahindra boost passenger vehicle deliveries by 15 percent in the year ending March 31, exceeding the industry forecast of 7 percent growth, according to Umesh Karne, an analyst with Brics Securities Ltd.

“The reason the Bolero doesn’t have much competition is that nobody has that kind of cost structure in place,” said Mumbai-based Karne, who forecasts Mahindra will sell a total of 356,000 vehicles in the year that began on April 1, topping Tata Motors’ sales of 342,000 for the first time. “Buyers believe that Bolero’s cost of ownership is lower than Tata Motors’ Sumo and other international rivals.”

SUV Price

Mahindra’s shares, which have risen 28 percent in the past year, gained 1.3 percent to 897 rupees at 11:31 a.m. in Mumbai. Tata Motors has dropped 8 percent in the past 12 months.

Bolero’s basic version sells at 579,018 rupees in New Delhi. That compares with 570,393 rupees for the Sumo and 722,454 rupees for General Motors Co. (GM:US)’s Tavera.

Ramesh Sinha, the owner of Nilo Motor, a Mahindra dealership in the northeastern state of Manipur, says the Bolero accounts for half of his monthly sales with buyers purchasing the vehicle in cash. In Bihar’s Chhapra city the vehicle is the favorite mode of transportation for wedding guests, said Dhananjay Srivastava, manager of Sonali Auto Pvt.

Bolero’s 63 horsepower and 19.8 kilograms-meter of torque is powerful at low speed, according Autocar India magazine’s review of the vehicle. That helps draw customers in a nation where the ministry of transport says only 62 percent of the 3.8 million kilometers of roads are paved. While the Sumo has more power, the Bolero’s low-end torque makes it easier to drive on village roads, according to Autocar.

‘Very Dependable’

“Bolero’s running costs are low,” said Nabin Kumar Sahoo, the owner of Ganga Transport Co. in Keonjhar town of Odisha, who uses the vehicle to transport the deity of Jagannath during an annual festival in summer. The Bolero Camper, a pick up variant, “is very dependable given the poor condition of our roads.”

Tata Sumo has a “low cost of maintenance at an affordable” price, Tata Motors said in an e-mailed response to queries. The company, which has 700 service centers across the country, has tied up with rural banks and cooperative societies to help make Tata Sumo more affordable, it said.

Mahindra, which started making sports utility vehicles with the Willys Jeep in 1945, has spent 12 billion rupees ($221 million) in the past 4 years to introduce the Xylo and the XUV500. The growth in demand for SUVs over the past few years has attracted a number of overseas companies from Toyota Motor Corp. (7203) to Renault SA to unveil models in the segment.

Ford’s Plan

Toyota introduced refreshed version of its Fortuner last year, while Tata Motors in October started selling a new version of its Safari SUV called the Storme. Ford Motor Co. (F:US) plans to introduce the EcoSport compact SUV this year.

“In the last 10 years, Mahindra has significantly improved quality and added new variants,” said Deepesh Rathore, the New Delhi-based India managing director of IHS Automotive.

Tata Motors’ lack of SUV variants may have cost it market share in rural India, said Rathore. The company led by Cyrus Mistry sold 29,892 Sumos in the year ended March 31 from 25,570 a year earlier, just a quarter of Mahindra’s sales.

“Tata has a very thin range of utility vehicles,” said New Delhi-based Rathore. “They don’t really have an answer to rural buyers’ demand.”

Mahindra forecasts demand for its products will increase in rural India even as sales slow in cities, according to Goenka. Tata Sumo’s “acceptance has revived” in rural India, with sales rising 20 percent, Tata Motors said.

Rural Spending

Per-capita spending by India’s villagers grew faster than that of urban dwellers for the first time in two and a half decades in the two years to March 31, 2012, according to Standard & Poor’s Indian unit Crisil Ltd. Rural spending was 12.9 trillion rupees ($235.7 billion) in the period, compared with 10.4 trillion rupees in urban areas, Crisil said.

Rising demand from rural areas is attracting rivals. Isuzu Motors Ltd. (7202), the Japanese truckmaker, plans to start making light commercial vehicles, competing with the Bolero pickup at a factory in Andhra Pradesh, with a target to build 100,000 vehicles a year in the next 5 years.

“Isuzu is globally known for its expertise in diesel engines and manufacture of tough and durable vehicles,” it said in an e-mailed response to questions.

The company has begun importing the D-Max pick up truck in single- and double-cab variants and the MU7 SUV and has opened two dealerships in southern India, it said in the e-mail.

’Market Matures’

“As the market matures and opens up gradually and farm incomes rise, its only a matter of time before bigger players tap the rural market,” said Basudeb Banerjee, an analyst with Quant Broking Pvt. in Mumbai. “That said, it will still take a lot of time and work to match Mahindra’s reach and low costs.”

Mahindra’s sales may have increased 19 percent to 707.3 billion rupees in the year ended March 31, according to a median estimate of eight analysts surveyed by Bloomberg. Tata Motors’ revenue in India may have dropped 15 percent in the period, the survey shows.

“Given our roads, any other car starts squeaking, but not the Bolero,” said Ranjeet Das, who runs a stone-crushing unit in Champua, Odisha and decided to trade in his Bolero for another one last week. “It’s not the most stylish, but the most suitable for us.”

To contact the reporters on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net; Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net


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