Will pass impending 4% excise hike to customers: Maruti

Raghunandhan is bullish on Tata Motors, Eicher Motors, Maruti Suzuki and Hero Motocorp.

Below is the verbatim transcript of RC Bhargava's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Sonia: Have you got any confirmation either from the finance ministry or the heavy industries minister that these excise duty concessions could be withdrawn starting tomorrow?

A: So far we have received no communication at all. Of course one way of looking at it is that if there is more communication, it means automatically it stands withdrawn as of midnight tonight.

Sonia: If it does get withdrawn starting midnight tonight, how much do you think demand could be impacted?

A: We don’t have that kind of data on price elasticity of demand that how much difference would it be - approximately 4 percent increase in price would impact sales. But I don’t think that these kind of changes in prices will have any long-term impact because we have lived through all kinds of tax rates in the past and they do have a temporary impact but over any long period of time, it doesn’t matter.

Latha: No question you will pass on the hike, right?

A: 4 percent is something which nobody can absorb. Nobody has that kind of margins to absorb 4 percent increase in cost.

Latha: When we spoke a month ago, you had pointed out that the November sales look good but you were not at all confident that it is going to be the trend, now you have one more month that you have observed, is there at least the trough is now turning into a pickup?

A: The industry as a whole, I am not sure how it is doing. We have been doing alright even in December - I haven’t got the figures yet because today is the last day, we will get the figures tomorrow. However, overall December has not been a bad month. Both retail sales as well as wholesale, we have been reducing inventory this month. So our wholesale this month will be lower but retail will be substantially higher.

Sonia: Have there been any price hikes that were undertaken in the month of December and if yes, what has the quantum been?

A: We haven’t increased prices yet.

Sonia: So going forward, this excise duty benefit withdrawal will be passed on in the form of about 2-4 percent price hike?

A: Whatever the rate of excise duty that will be added on to the cost of a car.

Latha: What happened in that meeting with the secretaries? What is your key takeaway as a man who have manufactured in India for so long now, are things changing for the better, did you get at least that vibe?

A: If you have heard the finance minister that day, he has a very good understanding of what is required for manufacturing. He talked about the whole question of making us globally competitive. I don’t think I have heard any ministers in the past talking of making manufacturing in India globally competitive. The moment you talk of global competitiveness then the whole picture changes and I think the finance minister understands it better than anybody else I have seen and has talked about global competitiveness, tax rates that are comparable to global rates, ease of doing business, which is comparable therefore to what is happening elsewhere. So he has got all the right views on what needs to be done.

Latha: Make in India ultimately will depend on how much the state governments cooperate. How many state government officials were there in that department at all, how much of a vibe did you get that they had been consulted?

A: All the chief secretaries were there. I don’t believe that all states will necessarily do the same things immediately but even if five-six states make their states globally competitive, the others will have to follow through pressure of competition because if a state gets left behind and doesn’t do this and investments don’t come there and jobs don’t get created then the people of that state is not going to let that government continue beyond the next election.

Latha: It is extremely good that for the first time you had even the chief secretaries invited, it wasn’t an all centre show, maybe it would have been even better if some of the Chief Ministers had made it since so many of them are from the same government as in the centre, is that the sense you are getting since you work in at least a couple of states that the state governments are sensing the mood and the long list of labour inspectors, factory inspectors, pollution inspectors or the non-renewal of leases, the ways in which industry has been troubled is on the decline?

A: I think a lot of states are becoming aware of this. Gujarat has been aware of this from earlier and our experience in Gujarat has been very good but other states Madhya Pradesh, Rajasthan, Haryana, all are getting very much into this frame of mind that we have to get our systems streamlined otherwise people will not invest in our states.

Sonia: Coming back to the sector prognosis for the New Year, so far year-to-date (Y-T-D), the passenger car sales have gone up less than about 3 percent or so, what is the expectation as you get into the new year, will it still be in low single digits or do you get a sense that because of the nascent demand recovery, we could get to double digits as well?

A: No, I don’t think in the next two-three months you are going to get very much better than low single figures. So I don’t think you should expect that demand within this financial year at least will rise significantly.

Latha: How much do interest rates make a difference at all for manufacturing?

A: Interest rates are not so important for us for manufacturing because we are not borrowers of money at all. In fact, it works other way round because we lend money. However, it makes a difference to the consumer’s affordability factor for cars. That is very important because demand depends on affordability.