My sincere welcome to all our shareholders who have taken the trouble to come here toattend our 37th Annual General Meeting. Your interest in the working of yourCompany is a source of great motivation to all of us.
2017-18 was in many ways a very eventful year for not only Maruti Suzuki but for allof indu stry an d bu siness. The much needed measures of economic reform designed to leadto the formalisation of the under-ground economy and ensure compliance with tax laws waswelcomed by all those who were deeply concerned about where the growing parallel economywas leading this country and industry. There was a short term blip in the growth of theeconomy but very soon growth strengthened and the GDP kept increasing each quarter. Thelast quarter growth was 7.7%. Income tax payers increased by 26% in 2017-18 and thenumber of indirect tax payers increased by 50% in the same year. Clearly the tax reformsare resulting in far higher compliance. The available data shows that the reportedemployment in the MSME sector has increased sharply possibly due to more accuratereporting. After the initial misgivings about GST businessmen are recognising theadvantages of tax compliance in terms of enabling larger investments for modernisationand growth of their companies and also reducing the interface with various governmentfunctionaries. These factors along with the expected good monsoons are very positivesigns for the economy industry and business.
The negative factors are the potential trade war between the USA and China. This couldlead to other countries also being drawn into this unfortunate course of events. Oilprices and the Iran problem create a great deal of uncertainty about energy costs thisyear. Both these events could lead to offsetting some of the benefits of the positivefactors.
Global events have highlighted the importance of devising and implementing a long-termmobility policy. Political events have shown how fragile energy security is and how easilythe price and supply of oil can be adversely affected for importing countries like us. Therising price of crude has considerably increased the burden on our balance of trade. TheGovernment's decision to push electric vehicles to replace internal combustion enginedriven vehicles was essentially designed to reduce the risks associated with the import ofcrude from a few countries. The quantum of imports is projected to increase steadily asthe economy grows and the need for mobility becomes larger and larger. Even thoughpollution from cars is still a very small part of the total pollution this position wouldchange as car ownership grows over the next two decades. Clearly the country needs tothink long term and develop a strategy that would mitigate these risks both in the shortterm and the long term.
The Indian car market is unique in that 75% of the cars sold are below 4 metres inlength and cost under Rs. 6.5 lakh at factory level. Electrification of these cars in theshort term has to be considered in terms of their affordability as well as the creationof the required charging infrastructure all over the country. In the longer term thesecars would be electrified subject to battery and other technology development leading tothe affordability barrier being overcome. As we gradually increase the percentage ofelectrified vehicles a very large number of internal combustion engine vehicles wouldalso be produced to meet the total demand. It would obviously be better to use alternativetechnologies and fuels that reduce the consumption of petrol and diesel rather thanproduce only electric cars and internal combustion cars. CNG is a clean fuel already beingused and its usage can expand subject to the distribution network expanding. It would be agood intermediate step. Ethanol and Methanol hold promise. Hybrid technology is alsoavailable.
The contract manufacturing arrangement with Suzuki Motors Gujarat is working verysatisfactorily. The first production line is in full production and the second line willbe commissioned early in 2019. Work has started on the third line and the expectedcommissioning is early 2020. We hope that the 2 million mark will be reached in the nextfinancial year and the next goal is 3 million cars a year by 2025.
Maruti Suzuki has always focused its attention on doing everything possible to increasethe value that a customer gets by using cars produced by the Company. We have always beenaware that the long term success of the Company would only be assured if we keep meetingand exceeding customer expectations from our products. The resounding success of many newmodels introduced in the recent past by your Company is no accident. It reflects theability of the marketing division to understand customer tastes and desires and the skillof our engineers to produce cars that incorporate the feedback from the marketingexecutives. We think this is an essential part of being customer-centric.
The cooperation between Suzuki Japan and Toyota Motor Corporation is another step takento bring the best of technologies for the benefit of customers and also to promotenational objectives. I am sure that this arrangement will create a win-win situation forall of us.
The NEXA channel for sale of some of our products was the result of the understandingthat many young customers now wanted a different experience while buying a car. Thesuccess of this channel has been quite amazing and reflects the ability to understandcustomer needs. The ARENA showrooms will give to other customers the benefit of theexperience gained in selling cars through the NEXA channel.
The relentless effort to expand the sales and service organisation to all parts of thecountry and the decision of the Company to build a land bank for this purpose is anotherfacet of our concern for the customer. We want to minimise the effort a customer has tomake in buying and maintaining his vehicle. The training of sales persons and mechanicscontinues and is being upgraded as better technologies to benefit the customers becomeavailable.
Over the years the quality of locally manufactured parts and the extent oflocalisation have engaged the Company's attention. Substantial progress has been made.The system of auditing the suppliers has been further improved and strengthened. Thecomponent manufacturing industry has also become aware of the huge opportunities it has toattain global size. We are working them to enable them to attain global standards ofquality and technology as the main beneficiary would be the customer.
Efforts to reduce the impact of inflation and rising material costs are another areawhere the Company has been making efforts to protect customer interests. The soft optionof passing on rising costs to the customer has not been adopted by us. Instead hedgingactivities have helped in reducing the impact of a weakening Rupee. Kaizen and qualitycircle activities by our workers have led to continuous improvements in quality andreduction of costs. Engineering personnel continue to work to improve designs andspecifications leading to cost reduction. The success of these efforts is evident in theprices of our products rising by an amount far below inflation or material costs.
A new royalty formula was signed by Maruti Suzuki and Suzuki recently. The percentageof royalty will now reflect the rising volumes of sales in India and lead to lower costsof production. The growing capability of our engineering department to design vehicleswill also lead to the same result.
Our focus on the customers will continue and will be the core of our strategy. Webelieve this will give maximum benefits to our shareholders and our customers.
As market leaders we continue to fulfill our obligations to Society. The CSR programmefunds are being utilised in full and leading to visible benefits. The strategy of limitingactivities under CSR and producing results in shorter periods of time is paying off. Inaddition the Company is proposing to create two Trusts one for promoting Research and theother to benefit employees and would fund these by contributing 1% of profits each year.The proposal for the Research Trust would be subject to your approval.
Thank you for your attention. Jai Hind.
R. C. Bhargava