See sluggish car sales ahead; eyeing 40% mkt share: Maruti

Reports of a possible price hike for Maruti Suzuki cars were doing the round. RC Bhargava, Chairman of Maruti Suzuki however, told CNBC-TV18 that he cannot comment on the issue. According to him the automobile industry as a whole will remain sluggish in the calendar year 2013 and going ahead, he does not expect any material improvement in industry dynamics.

“I think that the industry as a whole will remain sluggish in 2013 because the parameters which have governed the last few months have not really changed significantly. I do not see very much happening to change those parameters,” he explained.

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Bhargava further emphasised the fact that all petrol car sales will remain under pressure in 2013. The demand fall in this segment has been a major cause of decline in Maruti’s market share, he opined. However, the new Alto K10 is seeing improved sales, added Bhargava.

Maruti has planned a slew of new launches in 2013 and is aiming to reach 40 percent market share this year, guided Bhargava. Besides, he believes the Yen has moved in a favourable direction and a 10 percent improvement in the currency will certainly improve the company’s margins.

Here is the edited transcript of the interview on CNBC-TV18

Q: Reports this morning indicates that Maruti is looking to hike prices of its products between 1 and 1.5 percent over the next week or so. Is that on the cards?

A: I really would not have information about prices and even if I did, it would not be possible to disclose it in advance.

Q: How is 2013 shaping up in terms of volume growth? People have become far more optimistic about Maruti after the labour issues got resolved, but would you say that volumes are still sluggish and may remain like that in calendar year 2013?

A: I think that the industry as a whole will remain sluggish in 2013 because the parameters which have governed the last few months have not really changed significantly. I do not see very much happening to change those parameters. Costs of ownership of cars is high. The cost of cars is high and people’s income is not growing fast enough to offset these increases.

Q: Which category is it where you are facing the greatest sluggishness? Channel check seemed to indicate that for some of you new products like the Sport Utility Vehicle (SUV) etc. the response has been quite strong and that is a fast growing segment?

A: The petrol cars segment over 2011-2012 have been in a decline. There has not only been no growth, but there has actually been a downward trend in the demand compared to the previous YoY figures and I do not see 2013 changing very much. I think all petrol cars are going to remain under pressure. A new model like the Alto 800 or the Alto K10 is doing a little bit better. But, overall as far as the industry is concerned and Maruti is concerned, I do not think petrol cars are going to show any growth at all.

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Q: Where does that leave Maruti’s market share? Labour problems not withstanding, there has been a gradual erosion in market share which is worrying quite a few of your investors. Do you see that slide getting arrested in 2013?

A: The major cause of the decline of market share in these last two years has not been the labour problems or anything like that. It has been the fall in the demand for petrol cars in the market. Petrol cars as an industry have declined by about 16 to 18 percent. The diesel growth has been 30 to 50 percent in different parts of the year and therefore, inadequate diesel manufacturing capacity has hit us.

In 2013 we will be adding another 150,000 installed capacity for diesel engines by around September and that will see some growth in the sale of cars and a pick-up of market share. Also note that many of the car manufacturers today are under pressure and in December we actually gained market share, because in December our market share was 41 percent against about 37-38 percent which we have for the industry as a whole over this period.

Q: What is the company’s own target for this calendar year, to maintain it at around 40 percent or so have you raised targets a little bit because of the response you have seen?

A: No, at the moment I think a 40 percent target is what we are aiming to get as the first step. When we increase diesel capacity further and if the whole environment changes, because one is hearing that diesel prices may also go up by Rs 5 a litre in two steps or Rs 1 a month over 10 steps. We do not know what is going to happen or what kind of a hike we are going to see, but if the gap between petrol and diesel narrows and the demand for petrol cars therefore becomes stronger than what it is today, I think that could lead to a faster increase in market share. But, as I said, it depends on what the government decides on diesel pricing.

Q: What about product innovation in 2013? Has Maruti lined up any major innovation, any product upgrade or even a significant new launch for 2013 which might propel volumes and market share?

A: As a policy and an objective we always have some new launches every year and that will continue in 2013. There will be new launches. You would understand that it is not really possible to indicate what these new launches are and when they will come. But, certainly it will be in line with what we have been doing in the previous years. There will be a number of new launches, either a new model or an upgrade of an existing model or a facelift. These kinds of things will carry on every year.

Q: I imagine the management has been watching the way currencies have been moving of late. Are you feeling more comfortable this year about margin performance for Maruti given what has happened with currencies?

A: Very much so. I think the Yen has finally moved in a favourable direction. This 10 percent improvement in Yen will certainly improve our margins and I think we will end this financial year with better figures than what seemed possible a couple of months ago.