Pole position

Kenichi Ayukawa, Managing Director and Chief Executive Office, Maruti Suzuki
One company in a market of over a dozen carmakers has been shaping the industry’s growth, defying all odds. We are talking about Maruti Suzuki, the carmaker that has grabbed over 50 per cent of the world’s fifth biggest market, which is also one of the fastest-growing.

 

Going by its market share, the Suzuki-promoted company is an aberration. India’s biggest carmaker continues to get bigger by gaining share in an expanding market. It now holds a multi-year high of 50 per cent, up from about 47 per cent in 2016-17. In fact, Maruti Suzuki is the company that has been driving most of the growth that the Indian passenger vehicle market has seen in the last couple of years. Its 14 per cent volume growth was a key factor behind the eight per cent growth of the industry in 2017-18.

 

Maruti Suzuki has been growing market share at a time when the second- and third-biggest players — Hyundai and Mahindra & Mahindra (M&M) — have failed to ramp up their share. In the last three years, the company has broken into previously unexplored segments such as sports utility vehicles (SUVs), and earned success in others where it had failed earlier (mid-size sedans). Maruti’s mid-size sedan Ciaz, launched in 2014, has even broken into the league of Honda City. In a number of recent months, Ciaz has overtaken the City in volumes. The company launched its Brezza compact SUV in 2016 and has toppled M&M to become the largest domestic player in utility vehicles.

 

The company has shaken free of its image of being a small car manufacturer through these and other launches such as the Baleno and S-Cross. Its product mix has improved accordingly and this is visible in better margins in recent quarters. The company has given a premium quotient to its image with the launch of Nexa, a new dealer network, to sell premium cars. At present, Nexa sells the S-Cross, Ciaz and Baleno. Maruti Suzuki’s parent, Suzuki Motor Corporation (SMC), invested billions to set up a car manufacturing unit in Gujarat, which sells vehicles to Maruti at cost price. Maruti retails these vehicles through its network, reaping a profit.

 

This has enabled Maruti to expand its cash reserves, which now amount to over Rs 305 billion. Besides leading to gains through other income, the cash reserve gives the company the flexibility to invest in R&D, product development and network expansion. The company is procuring land parcels across the country to cushion its dealers from the shock of high real estate prices when future showrooms will be established.

 

SMC is also now helping Maruti to venture into local manufacturing of electric vehicles under a partnership it has forged with Toyota. It is also setting up a lithium-ion battery manufacturing unit at Gujarat to feed into Maruti’s electric and hybrid car manufacturing plans.

 

Maruti Suzuki is examining various options to support the vehicle charging infrastructure in India. Kenichi Ayukawa, managing director and chief executive officer, said the company’s approach will cover the entire lifecycle of an electric vehicle, and help build a clean and sustainable future for India’s automobile industry.

 

Maruti Suzuki’s share price has appreciated by a handsome 60 per cent over the past year, making the company the most valued Indian automaker, ahead of the combined market cap of Tata Motors and M&M. At a valuation of over Rs 2.6 trillion, Maruti Suzuki now also happens to be the seventh most valued listed company in the country, ahead of giants such as State Bank of India and Infosys.  

 

Analysts remain bullish on the Maruti Suzuki stock and continue to give it a “buy” call even after its recent record of Rs 10,000 a share. The profit in 2016-17 was a record Rs 73.37 billion, about 37 per cent higher than the previous year’s. Profit and revenue continued to expand in 2017-18 on the back of a 14 per cent growth in volume. Year after year, the company’s volume growth has been higher than the industry average. It is now gearing up to achieve an annual sales volume of two million cars by 2020. It may have to look at a further expansion in production capacity after hitting that landmark. 

 

Deutsche Bank, in a research report on the Indian car market in March, said Maruti Suzuki’s model cycle remains in a “sweet spot”. The four models for which there is a waiting period — Baleno, Brezza, Dzire and Swift — account for 50 per cent of the company’s sales volume. Besides the sharp gains in its stock price, shareholders continue to benefit from increases in dividend payout. The company paid out a dividend of Rs 75 per share in 2016-17, compared with Rs 35 the preceding year.



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