Maruti Suzuki eyes higher growth, market share gains with expansion

Maruti Suzuki India (MSIL) has ambitious plans to increase capacity. It is also seeking shareholders’ approval for a complex swap transaction, which  would acquire Suzuki Motor Gujarat (SMG), a subsidiary of Suzuki Motor Corporation (SMC) through a preferential offer. SMC already holds 56.37 per cent of MSIL’s equity.

MSIL targets 4 million production capacity by the end of 2030-31 (FY31). This requires doubling – that is additional capacity of 2 million in the next 8 years.

Work has started at Kharkhoda in Haryana where the first assembly line of 250,000 units is expected to go onstream in 2025 with a ramp up of up to 1 million by 2028.

The selection of a location for another 1 million capacity plant is underway. Work is expected to begin next year.

The company sees domestic sales of 3 million units (including sales to OEMs) and another 750,000-800,000 for exports. 

This projects the domestic market to record 6 per cent CAGR (Compound Annual Growth Rate) and touch 6 million units by FY31.

MSIL, which already holds the dominant passenger share, is expected to grow faster.

To meet emission reduction norms, MSIL is looking at petrol, electric vehicles (EVs), hybrids, cars running on 20 per cent plus ethanol mix, compressed biogas (CBG) and compressed natural gas (CNG) powered vehicles.

It’s also looking at a larger number of models. By FY31, MSIL expects EVs to constitute 15-20 per cent of cars sold, and 25 per cent could be hybrids, while there would also be ethanol, CNG in the mix.

The SMG unit is a subsidiary of SMC and has a contract manufacturing agreement with MSIL.

Instead MSIL will make a preferential issue of MSIL equity shares to SMC to swap the SMG shares.

The contract will be terminated as the SMG would then become a direct subsidiary of MSIL.

But MSIL must seek the approval of the majority of minority shareholders for this transaction as well as seek the approval of shareholders for preferential issuance of MSIL equity shares to SMC.

There would be little operational difference in the way the SMG plant is run. There would be a minimal impact on sales and profitability of MSIL.

The book value of SMG as on March 2023 is Rs 12,400 crore and the acquisition would be at book value.

MSIL holds around 43 per cent of the passenger car market. The plants in Gurugram and Manesar in Haryana, have the capacity to produce 1.5 million units.

SMG in Hansalpur, Gujarat has a capacity of about 750,000. Hence, the need to ramp up capacity if it is to get to 4 million-plus.

The company is also looking at a higher share of SUV with higher average selling prices and realisations.

At Q1FY24, SUVs were 25 per cent of the mix (against 17 per cent year-on-year (Y-o-Y) and 17 per cent quarter-on-quarter (Q-o-Q).

Maruti’s domestic market share in SUVs is 23 per cent in Q1FY24, up from 20 per cent in Q4FY23.

In Q1FY24, the total order book stood at 355,000 units (down from 4,12,000 units in Q4FY23).

Softening metals prices, easier chip supplies, new launches in the SUV space, and upgrades of the existing portfolio will drive higher margins going forward.

Around Rs 8,000 crore is earmarked for capex in FY24.

The strong order book and the better average selling prices and higher realisations should drive revenues and profits. Apart from cyclicality however, there are the risks of playing in a very competitive, capital intensive space, and possible policy changes that could impact plans.