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(Interview Transcript)
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Jagdish Khattar, MD, Maruti Udyog, said the base effect has been a factor for high June sales. New models did not contribute significantly to June sales, he added.
Maruti Udyog have sold 2,500 units of SX4 and 7,500 units of Swift. Khattar said that higher volumes would bring down costs and elevate margins, which is good for the company. The company is having low flexibility in increasing the volumes of SX4, he said, adding that the capacity of Swift has been increased.
He expects the company’s sales outlook to improve once the festive season begins. The company might have to struggle for another couple of months, Khattar said.
Excerpts from CNBC-TV18’s exclusive interview with Jagdish Khattar:
Q: Your June numbers look pretty smart and are higher than market expectations. Are you carrying that momentum into July as well?
A: Everyone knows that the market is difficult and we have been making every effort possible. At the same time, we did not do too well in the first quarter of last year. So, you have to really see this in relation to the same.
We have been able to do better than most others because a lot of work has been done in the field in the last one year. We are reaping the benefit of the same. The new models, which we introduced, do not figure very prominently in the June numbers because we were closed for eight days. They do result in more footholds at dealerships and we are able to convert customers.
Q: Just a broader question on overall markets before we come back to specifics on your models. Two-wheeler companies are reporting pretty bad numbers for the last few months. But your car segment seems to be doing better. Do you think the four-wheeler space is dealing with this interest rate-led slowdown better than two-wheelers?
A: I don’t think they would be very much different. If you look at the growth that we are talking about, it has largely come in from new models that have been introduced by some manufacturers. Some models of other manufacturers, which are selling today, were not there same last year. The base was not there. If they were selling one model that was the base, now they are selling two. They are showing growth. But the moment the base for the second model also comes in, you will see a lot of change.
Q: Can you talk a little about the growth you have seen specifically for the SX4 and Swift?
A: They were parallel models last year. It was the Baleno and now it is the SX4. We are selling more units of SX4 than we were selling Baleno. Our average Baleno sales were 900 or 1,000 and for SX4 it was above 2,500. There is a base but the new model is doing much better. The Swift was doing 4,000-4,500 and now it is doing 7,000-7,500. There was a base and there is an improvement. With some manufacturers there was no base, hence whatever they sell is growth. If you were to really analyze, there is hardly any growth when you take these factors into account.
Q: There is concern though that new products tend to be a little less profitable than current products or the current range that you have. Over the next few months, do you feel that perhaps margins would be a little stymied even though volume growth might be stronger?
A: This is not something new. All new models have fewer margins and as volume increase, margins improve. This is a cycle true for all models and we have to accept that. But in the case of Maruti, we have had three-four new models and so there would be some effect. We never look at quarter-to-quarter growth and see it from a long-term perspective. Even if the new model has fewer margins, if we build up the volumes, the cost will go down and margins will improve in due course.
Q: Could you share some SX4 numbers with us and what kind of an annual target could you keep on the basis of the initial response?
A: The SX4 and Swift are being produced at our new plant, which has a capacity of 100,000. We are producing above 7,000 and 2,500 units of Swift and SX4 respectively. We are already working at over 100% capacity. There is no possibility of increasing volumes at present. This is only possible when our expansion comes into being and that is some time away.
Q: How would you describe the market now? Is it a tough market for the car business and will be that way for the next three to six months?
A: The market is not easy. I think we have had an inauspicious one-month, which has gone by. Sales will pick up in August-September once the monsoons end and when the festival and wedding season begins. By then, I hope customers, who are hoping that interest rates would go down and are currently sitting on the fence, will come back into the market. I think we will have to struggle for another month or two and hopefully things should improve. But that is guesswork at the moment.
Q: What exactly is happening in the A3 segment because there have been numerous reports about how SX4 has overdone Honda and how the Logan is lagging. You must have done some channel checks. How are things shaping up there?
A: I have always believed that when you introduce a new model, the initial response, whether it is very good or lukewarm, should not be taken as a final decision. It takes some time before things settle down. We should give all these models another couple of months before we come to a conclusion.
Q: For the next two quarters, would it be fair to expect lower operating margins from Maruti?
A: As far as margins are concerned, I don’t think I will be able to discuss it. At the moment, when the market is tough and interest rates are high, the choice before us is either to scale-down our production or sell it by more marketing effort. In the end, it is better to have smaller margins but more volumes.
Q: Right now, is there any talk of a scale-down in production at Maruti like some two-wheelers have done?
A: So far, we have not reduced our production. That’s one of the reasons why, in June, we had built up quite a bit of stock. Though we were closed for eight days, we were still able to do 56,000, and so we did not scale-down our production. This led to an increasing in stocks but we were able to sell them.
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