Maruti says demand growth slower-than-anticipated for space

The auto segment has been hit hard by the poor economic condition in the country. High interest rates, sagging demand, high fuel costs and a possible hike in excise on diesel has bruised auto companies, and the RBI’s decision to keep rates unchanged is another blow.

Speaking to CNBC-TV18, the executive director of Maruti Suzuki Shashank Srivastava said that the unchanged rates are negative for the industry, and that conditions will continue to be challenging for auto companies. “The sentiment anyway is already negative and therefore it was widely expected there would be some correction in the interest rate to spur the sentiments. But that hasn’t happened, so I think the tough conditions will continue to prevail in the industry,” he said. He goes on to say that it is too early to scale down projections, but that industry growth is not as they expected, and therefore demand has been hit. Below is an edited transcript of his interview with Latha Venkatesh and Ekta Batra. Also watch the accompanying video. Q: Would this be a very big disappointment for you, do you think that you would have to scale down auto sales numbers now? A: The industry hasn’t been doing well because of the high fuel prices. Also, 70% of the retail segment depends on loans for their finance, so I think this would definitely be a negative for them. The sentiment anyway is already negative and therefore it was widely expected there would be some correction in the interest rate to spur the sentiments. But that hasn’t happened, so I think the tough conditions will continue to prevail in the industry. Q: To the extent that you would have to scale down your sales projection? A: Too early to say that, but we are expecting the next quarter to have very tough conditions. Therefore, while we are making all efforts, I think the industry hasn’t grown the way it was expected when we had projected the demand for this year. Q: With regards to your forecast for FY13, what are you expecting in terms of a contribution from petrol and diesel because now there is uncertainty on a possible hike in diesel prices as well? A: In the last two years we have seen an increase in the products of the diesel variants. I think last year we had as much as 48-49% of the industry with the diesel, and this year it has gone up further fueled by rumours of a possible hike in the excise for diesel vehicles. So I think that the industry is trying to get more of its capacity towards diesel Unfortunately, one thing we should remember is that while there is a skewed demand towards diesel, by no means it is assured that the diesel vehicle demand will always be there. In the sense that there is also an overall demand picture that has to be considered when we have to talk about bifurcation between petrol and diesel. I think here the overall sentiment itself is negative. Q: Would you say that SMEs would be terribly disturbed by the rates not falling or do you think any turbulence at the SME level is more because there isn’t confidence in growth and the cost of money is not a big factor? A: I think it is a combination of both. I think they would also be expecting a rate cut surely and that hasn’t happened. I am in Algeria right now and today morning we had the good news that the Greece vote has gone in favour of the euro. On the back of that we have seen markets rising in the world. But when I came to know about this no change by RBI, I knew it would be a big negative surprise for the Indian market.