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S. Muralidhar

THE just-concluded initial public offering (IPO) of Maruti Udyog Ltd (MUL) is a vindication of the market savvy Indian investor.

Coming as it did when the primary market was at its nadir, new listings and quality paper almost nonexistent, the good response for the MUL IPO should have been expected all along. But the overwhelming, historic, near-10 times, over-subscription received for this book-built issue has taken the market by surprise, giving room to speculation, nay hope, that the primary market has finally revived.

In many respects, though, the pouring in of applications for the IPO from individual investors was a clear vote of trust. A vote that shows that the company's brand image and future prospects have not waned in the investing public's eye, despite Maruti's jaded showing in the market over the past couple of years.

Pessimists who felt that the MUL IPO was priced steep and expected it to bomb seem to have been influenced by the obvious lack of aggression by Maruti attempts at tackling competition. That and the fact that it was the Government that was selling its shares through the IPO. After all, the Government should sell its wares cheap! Which is what it did when Suzuki Motor Corporation was allowed to buy more equity into MUL to become an equal equity partner.

A market leader always has a tougher time protecting its position than the challengers. And the emerging challenger, who is also aggressive to boot, tends to hog all the attention. This is true in MUL's case.

In the last five years, as the automobile industry was thrown open and competition hotted up in the passenger car segment, there probably were a number of consumer-friendly changes that Maruti could have brought in.

That it did not do so annoys many who track the company, this list, still, could not have been the yardstick for judging its future.

However, the easier way to judge prospects in the automobile sector is simply to look for a clear-cut future product strategy. After all, diminishing product life cycles and the increasingly demanding customer are going to force companies to speed up new product development.

Among the listed automobile companies, Tata Engineering and Mahindra & Mahindra have been successful with the Tata Indica and the Mahindra Scorpio respectively. However, their future products and strategies are still a question mark.

In the case of Maruti the picture just got rosier, not because the Government's influence in the company has reduced, but because Suzuki's control over the company has increased. And though there is no information in the public domain about its future products, a number of facts should renew investor confidence in the company.

Suzuki is the market leader in small cars in Japan. It has consistently developed new technology in the small car platform and because it has at least three new small cars — the Kei, the MR Wagon and the Twin — that could potentially make an entry into the Indian market.

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