Country’s top car maker, Maruti Suzuki, which produced 1.76 million vehicles during FY18, and is on course to manufacture and sell 2 million units by FY20, has set sight on a next ambitious milestone of 3 million units by 2025.
The Suzuki owned company had a market share of 50 per cent in the world’s fifth biggest market, India, during FY18 and has further gained share during the first quarter of FY19 to 52.54 per cent. “The contract manufacturing arrangement with Suzuki Motors Gujarat is working very satisfactorily. The first production line is in full production and the second line will be commissioned early in 2019. Work has started on the third line and the expected commissioning is early 2020. We hope that the 2 million mark will be reached in the next financial year and the next goal is 3 million cars a year by 2025,” chairman R C Bhargava said in the company’s annual report for 2017-18.
The company said India needs a mix of alternative fuel technologies as relying on pure internal combustion and electric cars will not help. “As we gradually increase the percentage of electrified vehicles, a very large number of internal combustion engine vehicles would also be produced to meet the total demand. It would obviously be better to use alternative technologies and fuels that reduce the consumption of petrol and diesel, rather than produce only electric cars and internal combustion cars,” said Bhargava. The company is of the view that the use of CNG can be expanded subject to the distribution network expansion. Ethanol and Methanol hold promise. Hybrid technology is also available, he added.
Against a wide perception that cars are the key contributor to pollution, Bhargava said pollution from cars is still a very small part of the total pollution but this position would change as car ownership grows over the next two decades. He said the country needs to think long-term and develop a strategy that would mitigate these risks, both in the short term and the long term.
Bhargava said the Indian car market is unique in that three-fourth of the cars sold are below four metres in length and cost under Rs 650,000 at factory level. “Electrification of these cars, in the short term, has to be considered in terms of their affordability as well as the creation of the required charging infrastructure all over the country,” he said.
Kenichi Ayukawa, managing director and chief executive officer, said he is aware that shareholders are curious to know how the company plans to utilise the cash reserve. “We have been sensitive to our shareholders’ expectations and in the last few years, the company has increased its dividend pay-out ratio. In the financial year 2016-17, the upper limit of the band of the dividend pay-out ratio had been increased from 30 to 40 per cent and in the very first year, the company almost touched this limit. The proposed dividend pay-out ratio in the financial year 2017-18 too is near the upper limit,” he said.
The company's cash reserves is estimated at about Rs 230 billion. Ayukawa stressed that the automobile business is capital-intensive and cyclical in nature. It is prudent to keep some cash, especially at a time when the technological landscape is changing very fast, making the business environment quite uncertain and unpredictable. “A resourceful company has more freedom in dealing with unexpected challenges. The company will continue to invest in the areas like R&D, network expansion and product development, among others. However, if required, the company may also invest in those areas which may emerge as critical for strengthening its core business and help prepare for the future,” he added.