Lower demand, protectionist measures abroad may dent value creation: Maruti

The company, which has over 50 per cent market share in the passenger vehicle industry, has been impacted by sluggish offtake and has seen total sales drop 33.5 per cent in July at 1,09,264 units

Maruti Suzuki India (MSI) has said headwinds like softening of demand in the domestic market and protectionist measures abroad may impact its ability to create value in the short term.

The company, which has over 50 per cent market share in the domestic passenger vehicle industry, has been impacted by sluggish offtake and has seen total sales drop 33.5 per cent in July at 1,09,264 units.

"India has already become the fifth largest car market in the world, though car penetration rate remains reasonably low at 3 per cent, with the country's population exceeding 1.3 billion people. With economic growth, the low penetration offers a good growth opportunity to the automobile market and the company," MSI said in its Annual Report for 2018-19.

However, in the short term there are certain headwinds that might affect the company's ability to create value, it informed shareholders of the company.

"These include slowdown in consumption leading to softened demand in domestic market, weakening of Indian economy due to protectionist trade measures adopted recently by various countries, uncertainty in commodity prices and foreign exchange fluctuations," it added.

The company will, however, continue to work on the necessary enablers to tap opportunities in the medium and long term, MSI said.

"These include strengthening its customer-centric culture, expanding sales and service network, increasing manufacturing capacity, investing in new products and technology, augmenting capability and skills of employees and inculcating green manufacturing methods," it added.

Terming the weak demand situation as unfortunate, MSI Chairman R C Bhargava said the company needs to recognise that such downturns do happen from time to time all over the world.

"Such occasions, while posing challenges also provide an opportunity to review what we are doing and to find ways of becoming more efficient and cost-effective," he said in the Annual Report.

Bhargava further said: "My belief is that we are near the bottom of the downward cycle and the economy, and car sales should start to accelerate in the near future. The fiscal year 2021 should again see your company coming back to its usual rate of growth."

With prolonged slowdown, MSI has been forced to take various steps, including production cuts at its manufacturing plants, in order to adjust its inventory to market demand. It had cut vehicle production for the fifth consecutive month in June by 15.6 per cent to 1,11,917 units as compared to 1,32,616 units in the year-ago month.

As per industry sources, the company has also reduced temporary manpower at its facilities and freezed new hiring till the slowdown continues.

A senior leader of the company's workers union, while confirming the developments, said that only temporary workers were impacted and there was no impact on the permanent employees so far.

However, a mail sent to the company regarding the jobs cuts and new hiring freeze remained unanswered.

In its Annual Report, MSI said it is increasing its engagement with customers to address the short-term challenge of weak market demand by pursuing targeted marketing events to generate enquiries and encourage customers to expedite vehicle purchase.

"Hyper-local marketing techniques are being used extensively for customer engagement," it said.