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Maruti Suzuki plans Rs 4,500 capex in FY22, subject to market realities

Maruti Suzuki’s sales and capex had fallen sharply in FY21 but this year, bookings for July rose 20 percent over June and company executive say the booking rate is already at 80-85 percent of the Q4FY21 peak

July 30, 2021 / 10:29 AM IST
 
 
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Maruti Suzuki, India’s largest carmaker, plans to raise capital expenditure in FY22 by 67 percent to Rs 4,500 crore as it prepares to defend its enviable market share amid increasing competition.

The Delhi-based maker of Swift and Baleno had lined up a capex of just Rs 2,700 crore for FY21 which was its lowest since 2015-16 and nearly 17 percent lower than Rs 3,250 crore capex of FY20.

Ajay Seth, chief financial officer, Maruti Suzuki India said, “The capex for this year would be Rs 4,500 crore but this would be subject to the market conditions like the Third Wave etc”.

India’s number three carmaker, Tata Motors has lined up Rs 3,000 - Rs 3,500 crore capital expenditure for FY22 for its India business following a sustained multi-quarter rise in sales especially for its SUVs and cars. Tata Motors’ capex for FY22 is more than double compared to FY21 capex.

With the pending order book of 170,000 units Maruti Suzuki saw an increase of 20 percent in bookings for July compared to June. As per the company’s senior officials the booking rate is already at 80-85 percent of the Q4FY21 levels when its production plants hit their peak capacity utilisation.

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Shashank Srivastava, Executive Director (sales and marketing) Maruti Suzuki India said, “We have seen a pick-up in enquiries, bookings and retails. Compared to the peak of Q4FY21 the enquiries are roughly similar and bookings are 80-85 percent. This time the recovery is from both urban and rural unlike last year which was mainly led by rural.”

Maruti Suzuki total sales in Q1FY22 stood at 353,614 units. Its same quarter last year sales were 76,599 units; crippled by the nation-wide lockdown. In Q4FY21 the company’s sales volume closed at 492,235 units. While the company did not provide a sales volume outlook for Q2FY22 it is expecting replacement car buyers to push up demand.

Maruti Suzuki’s domestic passenger vehicle market share in Q1FY22 stood at 45.3 percent as per data shared by the Society of Indian Automobile Manufacturers. By the end of FY21 the company had a better share of 47.7 percent.

“In the Q1FY22 Maruti Suzuki's first time buyer came down a bit to about 45.4 percent against 46.9 percent recorded in the same quarter last year. Going forward we do believe that the replacement car buying whose share had dropped to 18 percent from 26 percent in the industry should increase because its share has been 25-26 percent in the pre-Covid period,” Srivastava added.

Price hike on the cards?

Since January Maruti Suzuki has undertaken three increases in prices to offset the impact of the rising commodity prices. Its competitors including Tata Motors, Renault and Mahindra & Mahindra have also undertaken price hikes in recent months.

Maruti Suzuki officials acknowledged that there is continued pressure on margins due to the raw material cost pressures but refused to explicitly mention if the company was looking at passing on the hike to consumers.

“We will have to watch how costs move but we expect it to stabilise in H2FY22. The rise has been pretty steep and unprecedented and we have not seen this kind of increase in decades. To the extent we can pass it on to the market we are doing it but there is also a limitation to that. We will take a collaborative call between cost and price as we move forward,” Seth added.
Swaraj Baggonkar
first published: Jul 30, 2021 10:29 am
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