Maruti Suzuki stock touches record high despite production loss, labour unrest
Maruti Suzuki India Ltd cannot seem to put a foot wrong. Shares of India’s biggest carmaker rose 0.78% on Monday to ₹7,839.45 on BSE, another record high, on a day the benchmark Sensex ended 0.2% lower to 32,273.67 points.
The stock has risen more than sevenfold from a 52-week low of ₹1,047 it hit in the immediate aftermath of labour unrest at its Manesar plant in July 2012. One executive died and 100 others, including Japanese, were injured and equipment burned in a riot at the factory that led to production losses.
Maruti and its parent Suzuki Motor Corp. have put that dark chapter firmly behind it, judging from parameters other than the surge in its share price. Maruti sales rose 9.8% to a record of more than 1.58 million units in the last financial year, which it ended with a market share of 48%. Suzuki Motor, which owns 56% of Maruti’s stock, saw its global sales climb to an all-time high of 741,000 in April-June (largely pushed by 14% increase in India sales).
In a vindication of Suzuki’s strategy of investing in a new Gujarat factory on its own and keeping Maruti’s cash reserve intact, Maruti is sitting on an impressive cash pile of ₹24,000 crore. Maruti will source the cars from its parent.
This cash reserve has become a war chest for Maruti to take on any new competition (read Kia Motors Corp., Daihatsu Motor Co., etc) beside expanding its own business.
The idea is to sell 3 million units in India in the long run, according to chairman R.C. Bhargava, a development that will raise Maruti sales to more than ₹1 lakh crore from ₹79,546.20 crore in 2016-17 on sales of 1.58 million units.
Since becoming the managing director and CEO of Maruti in 2013, Kenichi Ayukawa has revamped all verticals—manufacturing, human resource, finance and marketing and sales infrastructure.
Now, the company is chasing the innovative idea of buying real estate across country, which will then be leased out to its dealers to build showrooms, workshops, etc.
“Why is Suzuki bringing in free money? In a sense, it will subsidise sales and service of dealers without incurring the cost. This money is zero cost money to the company and shareholders. We will own the land and lease it to the dealers who will build the building. It will take care of their investments and that way they will be tied up to me and they cannot run away,” Bhargava said.
He shared an interesting trivia that Suzuki chairman Osamu Suzuki’s initial plan was to own the dealerships and run the network.
“We told him while you may be doing it in Japan, it won’t be successful in India. Ayukawa agreed with me. Then I suggested this model, which meets all of his objectives and still does not disturb the entrepreneurship as I reduce his cost but in addition to that I get the benefit of individual ownership and entrepreneurship, which as a company I won’t get,” he explained.
“If this works the way we have thought of it, it will give us enormous stability going forward,” Bhargava added.
Future of automobiles indeed hangs in balance globally due to advent of new technologies and concepts such as electric vehicles, shared mobility, autonomous driving. Amid all this, Suzuki has placed all its bets on India, which is expected to be a market with sales of 9.4 million units by 2026 if GDP grows 5.8% a year.
A tieup with Toyota will help it with electric and hybrid technologies. Suzuki, along with Maruti’s research and development centre, will build future products for the world.
According to Chirag Jain, an analyst at SBI CAP Securities Ltd, Maruti Suzuki’s sales will grow at a compound annual growth rate of 13% till 2019-20.