It is my pleasure to express my thought through the Annual Integrated Report of MarutiSuzuki India Limited.
The COVID-19 pandemic has compelled people all over the world to make changes in theirway of working and living.
Since the time of the first lockdown the safety and health of our employees has beenthe paramount objective for the Company. We have been continually educating employees onthe importance of self-discipline and adherence to all safety directions and guidelinesissued by the government. In addition your Company also framed more detailed guidelinesfor employees to follow at home and in the shop floor. These practices were communicatedfor adherence to our vendors and dealers also. Your Company has paid employees theirsalary during the lockdown period and has also been able to give help to vendors anddealers where this was required and justified. The financial reserves of your Company haveenabled us to deal in a satisfactory manner with this unexpected event that came sosuddenly. I hope and pray that all our shareholders have remained safe and healthy andcontinue to take all precautions to protect themselves their families and society.
The downturn experienced by the automobile sector in FY 2019-20 was in a senseinevitable. It brought home the lesson that if there is a combination of substantial priceincreases with uncertainty in the minds of consumers there will almost certainly be a dropin the sale of high value consumer durables. The sale of cars in the country fell by 18%compared to the previous year. Your Company's sales also dropped by 16%. The profits aftertax were lower by 25%. Your directors have recommended a dividend of Rs 60 per share inline with the fall in profits.
The major challenge before your Company in FY 2019-20 was to meet the requirement oftransiting all products to meet BS-VI standards before 31st March 2020. I am happy toreport that 14 models were made BS-VI compliant and introduced to the market in a phasedmanner. The first BS-VI model was introduced in the month of April 2019 itself. TheS-Cross was to be introduced by the end of March 2020 but the lockdown prevented thatfrom happening. I am sure all of you would join me in congratulating employees of theCompany and especially those in engineering supply chain and production for the greatefforts put in to achieve this success. However moving to BS-VI was not the onlyregulatory compliance required. Safety regulations had also been enhanced and includedside impact and offset regulations ABS modification compulsory airbags pedestrianprotection and reverse parking camera. These changes were introduced in FY 2018-19 and FY2019-20. As can be understood the outcome of so many enhancements of emission and safetyregulations resulted in a significant increase in the cost of production of cars. Safetyand emission regulations in India are now very similar to those in Europe.
Several State governments also decided to substantially increase the rates of road taxin FY 2019-20. The road tax is now a one-time tax and is realised at the time of sale.This further added to the consumer's cost of acquisition at a time when prices had risensignificantly due to regulatory changes. It was also unfortunate that in FY 2019-20 theentire financial sector was under considerable stress because of rising NPA's of banks andNBFC's. Consumer financing suffered as a consequence with banks demanding higher initialdeposits for a car loan and tightening the creditworthiness norms. Almost 80% of our carsales are financed and these changes made the situation even worse.
The uncertainty in the minds of consumers during the year was created by theavailability of BS-IV and BS-VI cars during the year. The consumer was uncertain as towhich version to buy. At the same time there were rumours that there was likely to be adistress sale of BS-IV cars towards the end of the year when manufacturers would have toliquidate unsold stocks before the 31st March. All this led to many consumers postponingbuying decisions.
Even before FY 2019-20 the tax on cars in India was far higher than in any other carmanufacturing country in the world. In the European Union (EU) the VAT is 19% and noother taxes. In Japan taxes are around 10%. Given the much lower per capita incomes inIndia this created an affordability issue for many aspiring car owners. In FY 2019-20the increase in the cost of acquisition of a car coupled with the higher hurdles to becrossed to obtain a loan led to a fall in sales. It was proven that the price elasticityof demand is a real concept. It is quite apparent that if the manufacturing sector is togrow at a rate that would take its contribution to 25% of the GDP even by 2025 car salesmust increase at a much higher rate than in the past. The car industry constitutes about50% of the auto sector which contributes around 40% of the manufacturing sector's share ofthe GDP.
The woes of the auto sector were compounded by the COVID-19 pandemic even before thefinancial year ended. The lockdown from the 25th March 2020 led to disruption of the saleplans of all companies as the last week of March is always important. There could be noproduction in April and in May 2020 production was very limited extent because of the needto comply with all regulations and to ensure the safety of employees and customers. Juneproduction was better and your Company expects to gradually increase production and salesas the situation improves and workers return from their villages.
I am happy to report that our sales and service organisation has become fullyfunctional and the demand for your Company's products has recovered well. The economy inthe rural areas is quite robust thanks to a good Rabi harvest and the expected normalmonsoons. Tractor sales are already higher than last year. Our sales in the rural areasare growing faster than in the urban areas. We are hoping that in the second half of2020-21 sales may near the performance of last year and 2021-22 should be betterespecially if the Central and State governments recognise the importance of supportingfaster growth of the car industry as a means of reviving the economy and creating largeremployment opportunities.
The pricing policy for diesel and petrol seems to have changed. The gap between the twofuels has become very small and in several States diesel is costlier than petrol. YourCompany presently has no diesel products in the BS-VI range. The percentage of diesel carssold by the competition has fallen quite sharply. The market at present seems to favoursmaller hatchbacks and petrol and CNG cars. Fortunately we are well placed for suchproducts.
The plan to shift the Gurugram facility has had to be delayed because of the COVID-19pandemic.
Your Company plans for contributing to the improvement of the environment continues tobe treated as priority. All existing projects for water conservation emission control andair quality monitoring on a real time basis continue. The sale of CNG cars in FY 2019-20increased by 6.1% over the previous year. A 5 MW solar plant has been commissioned inGurugram. In Manesar in addition to the 1.3 MW solar plant a new 20 MW solar project isunder implementation and is expected to be completed in the first half of 2021.These willconsiderably reduce the carbon footprint.
Towards the end of March 2020 the Government of India asked your Company to help inthe production of ventilators required to fight the COVID-19 pandemic. We came to theconclusion that the most effective way to do this would be to help a small start-upcompany Agva Healthcare to scale-up production volumes. With support from a vendorMotherson Sumi we could reach a production of 400 ventilators a day by the end of April.Two of our joint venture companies are also involved in manufacturing masks and PPE.
CSR activities continue. As in other years we were able to fully utilise our budget.All the programmes approved by the Board are being implemented effectively. The effort isto increase the cost effectiveness of our implementation and this is helped by anindependent external evaluation. In addition your Company is building a 50-bed hospitalin the Mehsana area of Gujarat which lacks in medical facilities. This would beoperational by April 2021. It can later be expanded to a 100-bed hospital if required. Ourpartner for operating the hospital is the well-known company Zydus Cadilla. A school isalso being built in the same area and would be progressively expanded to provide educationup to class 12. Its start has had to be postponed to June 2021 because of the COVID-19pandemic.
The COVID-19 epidemic has given your Company as well as its vendors and dealers anopportunity to review all systems of working and become more efficient and competitive.Thus while we are going through difficult days I believe we will all emerge stronger andfitter in the future.
Your Company continues to work very closely with Suzuki Motor Gujarat (SMG). Twoproduction lines are fully operational in SMG with a capacity of 500000 units a year.The third line commissioning was delayed because of the fall in demand in FY 2019-20 andthe pandemic. Its commissioning date will depend on market conditions in 2021.
The well-knit team of employees continues to the greatest strength of your Company.Over decades they have shown that when all employees of a company work unitedly for itsgrowth and prosperity a win-win situation is created for everyone. The competitiveness ofthe Company remains very high and it is able to meet and overcome all challenges. The fullpotential of employees including the blue-collar workers is enabled to develop fullyunder this form of management.
Our vendor partners have grown along with your Company and have been a very importantreason for our success and competitiveness. We continue to work with them in a spirit ofpartnership for the mutual benefit of both. I am confident that many will become globalplayers in the not so distant future.
I look to the future with a great deal of optimism. Many new opportunities are likelyto open as the world adjusts to the post COVID-19 scene. The government has always beenvery supportive of manufacturing and I expect conditions for increasing ourcompetitiveness and growth will continue to get better in the coming year. We have strongsupport from Japan in the form of the Suzuki Toyota combine in critical areas oftechnology and development. Combined with the strengths of our own organisation yourCompany is well positioned to lead growth in the coming years.
May I thank all our shareholders for their consistent support to the management. I lookforward to continued support as we take on the challenges of the future.