Maruti, Hero plan steep production ramp up ahead of festive season

Maruti suppliers double the inventory to ensure uninterrupted supplies

Maruti Suzuki India (MSIL) and Hero MotoCorp could put manufacturing on a higher gear in September, ahead of the festive season.

The move by the passenger vehicle (PV) and two-wheeler segment majors signals a rapid recovery in the market that has been bruised by the pandemic.

MSIL, which produced 105,000 units in July, is expected to manufacture 118,000 units in August and a potential 150,000 units by September. In fiscal 2019, Maruti produced highest ever cars in the domestic market — 17,53,700 cars, clocking an average of 146,000 units a month. If the company does meet the target for September, it will be a record production.

Similarly, Hero MotoCorp, which produced 525,000 units in July, could raise it to 575,000 units in August and further to 630,000 units by September, said suppliers to these companies, who are aware of production schedules.

On automakers’ request, component suppliers have been maintaining higher inventory since the last couple of months, in order to ensure production doesn’t hit a snag in the event of an infection at factories or intermittent lockdown, said suppliers.

Spokespersons of MSIL and Hero declined to comment. “We cannot give forward-looking statements on production volumes,” said an MSIL spokesperson. A Hero spokesperson said he cannot comment as the company is observing a silent period ahead of the earnings announcement.

Auto companies had a zero-sales month in April, following the lockdown. Production has inched up month-on-month since June.

On June 17, Suzuki Motor Chairman Osamu Suzuki wrote to key MSIL vendors requesting them to have sizeable inventory.

Since then, vendors have been maintaining inventory for a higher number of days. MSIL’s vendors in NCR now keep inventory for seven days, against the earlier norm of three days. Similarly, vendors in Gujarat maintain a 10-day inventory, compared to seven days earlier, said a supplier.

Vendors, especially the smaller ones that are not financially strong, have issues related to working capital owing to the higher inventory. MSIL has, therefore, reduced the cash discount it claims on early payments to vendors to 9.5 per cent from the earlier 11.5 per cent.

“Many smaller suppliers have opted for this as the rates are now at par with bank rates,” said a person aware of the matter. Many other manufacturers are asking their vendors to maintain higher inventory to tide over the uncertainties,” said another supplier.

The festive season is crucial as it is a period of large-ticket purchases, which are discretionary in nature. The festive season this year will be even more pivotal for the automobile sector, given that it is has for long been affected by gloomy consumer sentiment even before the pandemic, said CARE Ratings in a report on Tuesday.

“As macroeconomic numbers continue to disappoint, reaching pre-Covid levels is unlikely in FY21. While a volume pick-up is expected from the second half of FY21, full demand recovery is expected only in FY22,” it added.