May 18, 2017 04:37 PM IST | Source: CNBC-TV18

Sub-4 meter cars to dominate Indian mkt; capacity expansions key: Maruti's Bhargava

The way the market and the economy is growing there is a need for more and more capacity, said RC Bhargava, Chairman, Maruti Suzuki.

Maruti Suzuki is in focus as the company's retail sales trends have been very strong on back of the success of Ignis and Baleno, which help boost their average monthly run rate.

RC Bhargava, Chairman, Maruti Suzuki said the way the market and the economy is growing there is a need for more and more capacity.

He said all the capacity expansion is done by Suzuki Motors in Gujarat, which is a 100 percent Suzuki subsidiary. The first line of Gujarat Plant has been commissioned and the second line work is underway.

Each of the lines has an installed capacity of is 2.5 lakh units per year. Once the third line (unit) is in place the capacity would be 7.5 lakh units but if one goes by the experience the company had in Manesar then they could stretch the capacity to 8-8.5 lakh units as well.

He confirmed that the retail sales trends currently were excellent.

According to him, in India the cars below 4 meters will remain dominant. He also confirmed that the company plans to move from smaller cars to bigger cars. However, the new smaller cars could be better equipped with electronics and connectivity gadgets etc, so their value would likely go up. The cars will remain in the sub-4 meter segment.

The company will also look at manufacturing cars bigger than 4 meters, he said.

Below is the verbatim transcript of the interview.

Latha: If you can tell us about your expansion plans, we understand now that Suzuki as well has invested and you are making preparations for another plant in Gujarat, can you give us some outline as to what the plans are there?

A: As you know, the expansion of capacity is all being done by Suzuki in Suzuki Motors Gujarat which is a 100 percent Suzuki subsidiary. So, while we are not directly involved in those investments in the management, we naturally are very much interested in the capacity which is being created.

The first line has been commissioned and the second line work is underway. The present target for the second line commissioning is early 2019, but we have now been requesting Suzuki to see if that can be advanced by a few months so that it can actually happen in 2018. As soon as that part is underway, then I think the work on the third line will be necessary because the way the economy is growing and the market is growing, there is need for more and more capacity.

Sonia: Can you tell us a little bit about what the eventual capacity will be once the third line comes on stream as well compared to what the capacity is now?

A: Each of these lines is 2,50,000 units a year. So, three lines would mean 7,50,000 units installed capacity. However, our experience in Manesar is that usually with three lines of 2,50,000, instead of producing 7,50,000, the production can be stretched to something between 8,00,000-8,50,000 units in a year.

Anuj: The market is betting on Maruti slowly moving up from entry level cars to more mid-level cars and higher level cars with much higher realisations. Do you think that is a progression which Maruti will be able to achieve over the next five or six years?

A: No, I don’t think we have ever indicated that we are moving up from the smaller cars to bigger cars. That has never been part of our program. In fact our belief is that in the Indian market, the cars below 4 meters will remain the dominant part of the market.

It is true that in this category the cars will be better equipped with electronics, and a whole lot of other connectivity gadgets and such things, so, their value will go up, the cars will remain still in the small entry-level segment or the sub 4 meter segment. There will be growth above 4 meter also which is happening like with the Ciaz and the Ertiga, but we have no plans of making anything bigger than that at the moment.

Sonia: I wanted to ask you a little bit about the retail trends because post demonetisation, Maruti has seen the best in class volume growth. Is it only because some of these new products have been doing well or are you seeing generally in the industry a big sign of recovery? Also what would your volume estimates be for the full year because a lot of people are talking about the possibility of even a 15 percent growth here?

A: 15 percent growth is I think a little bit too optimistic because we will not get the capacity to grow at 15 percent. Last year we produced a little bit over 1.5 million cars. A 15 percent growth means an addition of something like 2,25,000-2,35,000 cars. I don’t think Gujarat can add that much volume in the first year.

Latha: Just to go back to Anuj’s question, what is the percentage of sub 4 meter cars to over 4 meter cars now and what may be the ratio say two years down the line?

A: At the moment sub 4 meter cars are I think a little bit over 70 percent of the total and I don’t see that changing significantly even two years on.

Sonia: You did speak about a 15 percent volume growth being very optimistic for FY18. You were telling us also about what the trends are looking like now over the next few months?

A: The retail trends have been excellent and in fact the inventory with the dealers are much lower than what is actually the optimum inventory which we would like to keep with dealers. Normally we like to keep about a month’s inventory with the dealers.

A month’s inventory means something like 1,25,000-1,30,000 cars and at the end of December inventories had fallen to 30,000-35,000 cars. Even today these inventories are about 80,000 cars. So, actually the problem is that we are not able to keep up with the retail sales by meeting the sale numbers as well as replenishing inventory.

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