Maruti says 50 bps rate cut needed to 'excite the market'

Maruti Suzuki hiked price of its vehicles on Thursday by up to Rs 34494 to compensate the impact of the infrastructure cess proposed in the Union Budget 2016-17.

In an interview with CNBC-TV, RS Kalsi, ED of Maruti Suzuki said that the company may see marginal slowdown in demand due to price the price increase and customers may take some time to adjust to new prices.Kalsi further said that a 50 bps repo rate cut is required to 'excite' the market as it it will bring down the lending rates and EMI for vehicle loans.Below is the verbatim transcript of RS Kalsi’s interview with Latha Venkatesh and Reema Tendulkar on CNBC-TV18. Reema: You have indicated in your press release that you have increased prices in the range of Rs 1,500 to Rs 34,500 per unit. Does that cover the entire infrastructure cess cost that is imposed on you or only have you passed on part of it? A: This has been a practice at our end that whenever there is any change in the duty structure, whether upwards or downwards, we pass it on to the customer. So, in case there is a reduction, we had been earlier passing it on to the customer exactly by the same amount. So, this time there has been an increase and lowest being on our entry level cars and highest being on S-Cross and it has been passed in totality to the customer. Latha: You have passed all the cess’s on all your models, the entire pass through is over? A: Yes, that is right. Reema: So no impact on margins? A: No impact on margins. It is revenue neutral for us. However, it will impact the pricing for the customer. There have been models like hybrid where there has not been any increase in the duties, so, there we have not touched the prices. Latha: The February numbers were not very exhilarating, your overall sales were down and export sales were rather sharply lower. Even domestic sales actually flat, flat as flat can get, is this largely because of the disturbances in various parts of the country, the Chennai floods must have had some bit of an impact and then the Harayana problem. Would you attribute it to one-offs or is there that demand isn\\'t all that good? A: As far as market is concerned, there is no big buoyancy in the market per se. Having said that, low growth numbers from Maruti Suzuki, are primarily on account of loss of production due to disturbances in Haryana. We lost about 10,000 vehicles. So, that is one of the major reasons for the low growth in the month of February for us. Latha: Would you say that if that 10,000 was not impacted you would have turned in a 1,18,000 sale? A: Yes, exactly that is right. Reema: Even if we account for that 10,000 units of production loss and we add that back, you will still have sales growth of only 7.5 percent in the month of February which is lower than the average that you have seen in the past few months. So the question is has there been a bit of a slowdown in demand and secondly now that you have gone ahead and increased the prices for the consumers, do you expect demand and volumes to come down even further? A: First of all, the wholesale numbers should not be seen on a month-on-month (MoM) basis. We had a target in the year to have a double digit growth and we are maintaining that and February plans were in-line with that only. In spite of that till February our numbers are at 11 percent plus growth. As far as impact of price increase is concerned, certainly we expect that there may be some further slowdown on account of increase in prices and it will take some time for the customer to absorb this increase in prices. Latha: I take your point that wholesale numbers should not be confused with the actual demand but what is the retail feedback telling you, that 11 percent will be just maintained or will it be bettered in the current quarter or the next? A: The retail figures, we are maintaining our momentum of previous quarter. Of course quarter-on-quarter (QoQ) there is a big disparity in the retail numbers because of the seasonality; that has a major impact on the retail. Latha: On year-on-year (YoY) terms do you think that demand is a bit stronger in the current Q4? A: I won’t say that; demand is subdued in Q4 and this is lower than our expectations. So, moving forward, further we have to go with a cautious optimism as we enter the next year. Latha: Do the rate cuts help, people are expecting a rate cut around the corner and this time after April banks are very strongly expected to pass it on especially to new borrowers? So if the cost of an EMI went down by say about 0.25 percentage point, will that make a big difference? A: Certainly any rate cut is welcome but the amount is very important because say 25 basis points do not make much of a difference in terms of EMI. So maybe 0.50 percentage cut is something which should create some excitement. Latha: Export markets, do you see them turning at 12-12.5 percent cut was a bit of jar, will that stabilise? A: That will stabilise. Export market we will maintain the numbers that we have already talked about. Reema: What is the target that you have set out in terms of FY16 sales, total sales as well as if you could break that up in domestic as well as exports and even for FY17 because I am sure you have done the math when you go ahead and increase the prices so what is the internal target? A: Being a listed company we do not give guidance on our future numbers. Reema: Single digit? A: No, I won’t comment on that. (Copy edited by Sidhartha Shukla, interview transcribed by Priyanka Deshpande)