Maruti Suzuki India has cut prices across several models to pass on the benefits of lower goods and services tax (GST) to consumers.
This whole process of ushering in the GST system has proceeded far more smoothly than what either government or people thought it would happen, RC Bhargava, Chairman of the company told CNBC-TV18.
The company was able to start invoicing on GST formats from the first day. All the vendours, suppliers and dealers got registrations done and also have their systems giving their invoices on the GST compatible format, he said.
“Exactly what was the difference in the tax compared to what was existing before GST, we passed on that benefit to the customer and it has varied from state to state because the value added tax (VAT) in the state is different from one state to another,” he added.
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According to him, it is too early to talk of demand pickup. In the month of June retail sales were high partly because of the uncertainty of what will happen post GST and partly because of the overtime working of auto companies to see that stocks at the end of the month were as low as possible with dealers.
He expects retail sales for the month of July to be lower than last month however the wholesale sales to be much higher than last month.
“We will get double digit growth which means around 10 percent or little bit over 10 percent for the year as a whole,” said Bhargava.
In his opinion, it will take a little time before one can work out what the actual impact on cost is because of GST.
Overall GST will be beneficial to companies, to the economy and over time it will be reflected in growth and possibly prices will not go up in the near future, he mentioned.
Below is the verbatim transcript of the interview.
Latha: Was there anything reception at all due to GST or for you was it a time when sales roared?
A: No, this whole process of ushering in the GST system has proceeded far more smoothly than what either government or people thought it would happen.
We, at Maruti, were able to start invoicing on the GST formats right from the first day of sales. All our vendours, suppliers, dealers, they have all got registrations done and they also the systems working for giving their invoices on the GST compatible formats. All of that is going. The price reduction was something which was anticipated by us although some sections of the media had said prices of small cars will go up and all that but that was all a mistake somewhere. Sales proceeded quite normally.
Reema: You have reduced the prices of your vehicles on an average by close to about 3 percent. Is this going to be margin neutral for Maruti Suzuki now?
A: No, the policy of the government was that GST should not result in any company gaining profit from GST. So what we have done is exactly what was the difference in the tax compared to what was existing before GST we passed on that benefit to the customer and it has varied from state to state because the VAT in the states was different from one state to another.
So this is absolutely neutral as far as margins are concerned.
Anuj: Has that led to a bit of a pickup in demand? Is this quantifiable in terms of demand surge?
A: It is too early to talk of demand pick up but let me put it this way that in the month of June, retail sales were very high. Partly because the customers were uncertain what was going to happen, whether prices are going to go up or go down and partly because auto companies were also working overtime to see that stocks at the end of the month were as low as possible with dealers.
As a result our retail sales in June were very high at about over 140,000 cars and as a result, the retail sales this month are likely to be lower than last month. But the wholesale figures will be much higher because last month wholesales were kept low to reduce the inventory and this month because the stocks at the end of June with dealers was only about 40,000-42,000 cars, this month the wholesale sales will be much higher than last month.
Latha: Your June numbers came as a bit of a disappointment, 1.06 lakh, the street was working with close to almost 1.15 lakh or rather a 14 percent growth, so that just gets ironed out? You have deliberately sold less to wholesalers?
A: Yes, it will get ironed out. We were deliberately having a policy that stocks with dealers on June 30 should be as low as possible and we are down to 42,000 cars, which is roughly one-third of what the stock should normally be with the dealers.
Latha: What would your runrate therefore be?
A: Overall what we said in the beginning that we will get double digit growth which means we will be around 10 percent or little bit over 10 percent for the year as a whole. So these month to month figures of retail and wholesale should not be read by themselves. They have to be looked at over a total period of time and I think overall you will find that at the end of the year, it won’t be very different from what we are projecting.
Anuj: Give us a word on the product mix as you move forward, the analyst view is that – Maruti still has a lot of cars and the bread and butter is still the entry level car but there is a lot of move towards premiumisation, so the new products are getting introduced in that particular segment, would that be right that you could be making a bit of a move towards the product mix slightly on the premium side?
A: No, we will have to keep putting new products in all segments. It cannot be that we ignore one segment or the other segment and concentrate on new products only in some segments. That is not going to happen, it cannot happen, it will be counterproductive for that to happen. The company has to make sure that in all the segments where it operates, it periodically renews its product mix.
Latha: Therefore the percentage of the whole doesn’t change?
A: Yes, that will continue. I don’t see that changing very much.
Reema: While the tax difference on account of GST has been completely passed on to the customers, what about costs savings under GST for the company in particular? Are we going to see some cost savings for Maruti because of easier way of doing business which can be accretive to your margins?
A: I think it will take a little time before we can work out what the actual impact on costs is because of GST.I don’t think it can be calculated in ten-fifteen days or even a month or two months. I think it will take a little bit longer to work out the whole system because people had been used – I am not talking about Maruti, I am talking about people we interact with – to a certain way of working whether it is logistics or whether it is in various other agencies we interact with and it is going to take some time for them to adjust to the new environment, to the new way of working and it will take a little time for us to work out but overall GST will be beneficial to companies, to the economy and over time it will be reflected in growth and possibly prices will not go up in the near future.