Maruti shifts Dzire production to Gujarat
Maruti Suzuki India (MSIL) has shifted the production of the Dzire, one of its highest-selling models, from the Manesar facility to Suzuki Motor Gujarat’s (SMG’S) plant in Ahmedabad.
This is because it seeks to free up space for new models at its Manesar plant, said people in the know. On average, MSIL produces close to 1,000 units of the Dzire a day. SMG is a 100-per cent subsidiary of Suzuki Motor Corporation. It acts as a contract manufacturer for MSIL and was established in March 2014. In a bid to take on the competition, MSIL is planning to introduce models of sport utility vehicles over the next couple of years at varied price points.
“MSIL’S Manesar facility, which makes the Ertiga, Wagonr, and Alto, among other models, is operating at optimal capacity. Hence, the production line that makes the Dzire was shifted to SMG’S facility last month. It frees up capacity for some of the upcoming new models,” said a person aware of the development.
In an email response, an MSIL spokesperson said the decision to produce a model at a particular plant or line was based on the efforts to step up efficiencies and productivity. “We plan our products to be produced at a particular line or plant, including our sister company SMG. These efforts and adjustments help us fulfil customer demand. Besides, it may be noted whatever our sister company SMG produces, it is only for MSIL customers,” said the company spokesperson.
Analysts said the shift of a high-volume model like the Dzire might affect Maruti’s financials marginally.
“This move may impact Maruti marginally because the depreciation of new plants and equipment is higher than at the existing plant, which is an almost fully depreciated one,” said Mitul Shah, head of research, Reliance Securities.
SMG operates on a no-profit and no-loss principle, and manufactures and sells the products to Maruti.
As Maruti buys from SMG, Maruti’s purchase of traded goods, which come under the line item ‘raw materials’, goes up. This affects the company’s gross margins. The depreciation cost incurred by SMG is built into raw material costs incurred by Maruti, said an analyst.
“For the past couple of years, as SMG is ramping up production, depreciation has fallen for MSIL, but its earnings before interest, tax, depreciation, and amortisation (Ebitda) margins have dropped to 8-9 per cent, from 13 per cent earlier. Hence the Ebit margin and not Ebitda margins should be considered when looking at the financials of MSIL,” said the analyst cited above.