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Maruti Suzuki, the market leader in Indian car market, expects buying sentiments to improve in H2 of the fiscal on key policy decisions. H1 may be under pressure due to uncertainties in rural economy and monsoon. Ajay Seth, the company’s Executive Director and CFO talks to Ajay Modi about the business outlook and challenges.
The first month of this fiscal has started with improved sales. Your company saw 27 per cent jump in vehicle sales in April. What is your sense of the recovery?
It is too early to say. Initial months of the year are usually on a low base. We still have negatives in the system. There is a rural slowdown due to unseasonal rains and uncertainty on monsoon. We await an uptick in the economy. Policy decisions like GST and Land Acquisition will act as kickers. People who are waiting to invest will start firming up plans once there is clarity. This will lead to change in sentiment and job creation. You will find first time buyers entering the market. We hope the second half to be better when some of these policy decisions will start converting into corporate actions.
Given the economic situation in small towns/rural area, how will these markets grow for you this year?
These markets account for one-third of sales. It grew by 23 per cent last year. There were years when we grew 50-60 per cent due to small base. But rural sales this year will depend on factors like monsoon and rural employment schemes. But I will still say there is a lot of potential for cars in such markets unlike two-wheelers which has flooded the rural market. There will be buying though growth may get restricted depending on income changes.
What will be triggers for urban demand?
Job creation and better incomes. They help you to take immediate decisions. If income goes up, you have disposable income. All of these are linked to the GDP. Another factor is interest rate since 75 per cent cars are financed. With inflation coming under control we hope correction in interest rates.
How does the company plan to better address the premium car buyers and differentiate the experience for them?
We are creating an exclusive channel to cater to clients wanting to buy premium cars. We need to make sure we give them the focus and detailing. Not that we will be dealing differently with the other customers. But a customer buying product 'X' will have different expectations from one buying 'Y'. We must meet those expectations. Details are being worked out.
One of the factors that helped you post better profits in FY15 was stable raw material. What is the outlook for this year?
Some of the commodities have started inching up while some still remain stable. Lead, copper, etc are going up while steel is stable. Commodities will go up from the level of Q4 but the rise will not be steep.
Will you bank on higher discounts to push up sales?
Discounts have become a market reality. Markets determine the discount on every model. Discounts are inseparable from selling cars. In a pull market, discounts tend to be lower. In push market, discount tends to be higher. At the moment we are in a push mode. During the pull years of FY10 and FY11, discounts were 3-4 per cent. It has now moved to 5.5-6 per cent.
What progress is being made in your Gujarat project?
We are progressing as per the timeline. We are doing a detailing on how much investment will go into the project. Our plan is to set up a plant of 750,000. In the first phase, capacity will be 150,000 units and then we will expand based on the market demand. We expect to roll out the first car in mid 2017.
