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Can Nissan Make the Most of This Flourishing Market?

By ICRA Online – Mar 1, 2014 at 8:13AM

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Nissan is focusing at India like never before with its Datsun brand

"It is not more surprising to be born twice than once; everything in nature is resurrection." -- Voltaire

Japanese automaker Nissan (NSANY -0.27%) seems to have taken a leaf out of Voltaire's book: It has given its long-shelved Datsun brand a second life. The company is all set to launch the Datsun Go hatchback in India next month.

Revival of the Datsun brand will reinforce Nissan's current branding strategy of having different brands for different income groups. At the same time, it will allow the company to penetrate the potentially lucrative Indian auto market. Nissan stock has gained 7% in 2014, and the Datsun launch could give investors a bigger bang for their bucks. Let's take a closer look.

Datsun Go. Source: Datsun

India beckons
Nearly 70% of India's population of more than 1 billion resides in rural areas where not even 20 out of every 1000 people own a car -- the market is enormous and untapped. Residents of smaller towns are seeing their income rise at a faster pace compared to metropolitan populations. In India's context, a Reuters report recently quoted IHS Automotive analyst Anil Sharma as saying, "Smaller towns and rural areas are a gold mine that foreign automakers are yet to tap efficiently." But this could change soon. Defying the current slowdown in car sales in India, all major automakers are announcing new launches and planning to increase their market share.

Nissan wants to increase its market share to 10% by the end of 2016. Nissan India president and CEO Kenichiro Yomura believes that the country has great potential "in mid to long term" and is quite optimistic about the demand conditions. But as of now, the volume Nissan sells in the country is far less than what it exports from India as the automaker's present offerings -- such as the Sunny, Micra, and Terrano models -- haven't much appealed to the masses. The company is looking to change this and raise its brand awareness with the launch of Datsun.

The launch and road ahead
Datsun, which was once Nissan's global identity, is being raised from the ashes to make the most of the opportunities available. The first car -- the Datsun Go -- will be rolled out in India next month. The hatchback will be available in three variants and four colors. Nissan has deliberately kept things simple so that there are minimal logistical and operational issues. Datsun India VP Ajay Raghuvanshi told the media, "We want to focus on quick deliveries and reach in smaller cities."

The Go will be seen in Indian showrooms by early March, and buyers can drive it home in another two to three week's time. Targeted at entry level buyers, the car will be attractively priced at less than INR 400,000 (roughly $6,400 at current exchange rates).  

Nissan plans to roll out 10 fresh models under the Nissan and Datsun brands by 2016, expecting Datsun to account for half of the company's India revenues. It's making the cars locally at its factory in Oragadam near Chennai, and may increase production either by adding capacity in the plant or by opening new factories in India. The Japanese carmaker also intends to increase its network to 300 dealerships by the end of 2016.

All these steps will help Nissan cement its Indian foothold in the presence of other overseas players such as Volkswagen (VWAGY -2.72%) and Hyundai Motor (HYMTF 1.14%).

Fierce competition
Volkswagen has lined up its models keeping in mind India's enormous small car market -- the latest offering being the Up!. Starting at INR 550,000 (approximately $8,900), the Up! is positioned below Polo, which is the automaker's premium hatchback model in the sub-continent. The German heavyweight will invest more than $242 million in the next five years to build production units for making diesel engine. Besides, the company also aims to boost capacity from 130,000 units to 200,000 units at its Chakan plant.

Hyundai Xcent. Source: Hyundai

Hyundai recently showcased the Xcent that is directed toward the compact sedan market, and is slated for release in March. This, too, is an attractive segment in the nation as excise taxes are 12%-15% lesser than that charged for larger sedans, according to researcher IHS Automotive. The South Korean company hasn't disclosed the Xcent's price, except by saying that it would be available "at very competitive" rates. Other than the Xcent, the automaker plans to unveil four more vehicles in the next couple of years.

Last word
Nissan's strategy of approaching an emerging market with an entry-level car looks wise. How far Datsun will help Nissan penetrate the lucrative Indian market will become clearer only after the launch. This could be the beginning of something big for Nissan in India. India has huge potential and Nissan's efforts to dig in deep could bring big rewards for the carmaker and its investors.

ICRA Online has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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