Maruti powers its way to top 10
With an over 50 per cent rise in share price, Maruti Suzuki enters the Top 10. The auto major is set to be in the big league over the long run.
The onset of winter in 2016 was a challenging time for companies in India. On November 8, the government had demonetised ` 500 and 1,000 currency notes, sucking out 86 per cent liquidity. For a company like Maruti Suzuki India, this was a potential catastrophe, as cash has a big role in car purchases. Worse, smaller towns and villages, hit more than the bigger cities, accounted for nearly 33 per cent of its sales, more than for any other car maker. The company rose to the challenge. Over the next few weeks, card swiping machines were installed at all 2,500 outlets and dealers encouraged to convince banks to offer 100 per cent on-road financing. Maruti registered its highest monthly retail sales of 1.83 lakh units in December. The rivals stuttered. This is just one example of how Maruti has upstaged competition in every facet of the business in the last two years. In the first half of 2017/18, its domestic market share stood at 50.4 per cent, the best since 2001/02. The last three launches, Dzire, Brezza and Baleno, have been blockbuster successes. It makes six of the top 10 best-selling cars in the country. With every passing quarter, it has been extending its lead over others. In 2016/17, revenues grew 18.54 per cent to ` 66,909 crore and net profit 36.5 per cent to ` 7,337 crore. Revenues have risen 20 per cent to ` 38,570 crore in the first half of this fiscal (with profit at ` 4,040.7 crore).
It has broken into the top 10 in the BT500 list for the first time. The over 50 per cent increase in its share price in the Oct 2016-Sept 2017 period took it from rank 15 in last year’s BT500 to the rank 10 this year.
The NEXA Story
In 2015, when the company decided to set up a distribution chain for more aspirational consumers, it had its fair share of detractors. Even its parent, Suzuki Motor Corporation, had doubts, as previous attempts to cater to this section, for example with premium sedan Kizashi, had not yielded results. The brand stood for value-for-money cars. Its Managing Director and CEO, Kenichi Ayukawa was, however, convinced. “We had a target of selling two million cars by 2020. Beyond that, even 2.5 million and three million, and so on. The existing set-up could not take so much pressure,” he says. Launched with S Cross, a premium crossover, Nexa did not have the best of starts. The introduction of Baleno a few months later, however, changed the story. That was followed by the transfer of Ciaz from the existing network and more recently an experimental trendy hatchback, Ignis. Nexa is now on a firm footing. “Nearly 300 Nexa outlets sell close to 3,00,000 cars a year. It is satisfying that 50 per cent of these customers never considered a Maruti earlier. If Nexa was a new company, it would be the third-largest in the industry,” says R.S. Kalsi, Senior Executive Director, Marketing and Sales.
Make in India
When Maruti exported a batch of 1,800 Baleno units to Japan in February 2016, it was the first time a vehicle produced at its factories in India was sent for sale to consumers in parent Suzuki Motor Corporation’s home country.
If this signaled Suzuki’s growing trust in Indian manufacturing, Brezza, the compact SUV based on the Swift platform that was designed and developed by Indian engineers, showed the freedom being given to the in-house engineering team. “We have developed in-house capability to design, develop, test and validate world-class cars,” says C.V. Raman, Senior Executive Director, Engineering. “This reduces the time taken to design a vehicle and keeps costs in check.”
Along with its wide distribution network, the capabilities of Maruti’s domestic research and development (R&D) division give it an edge over others. The process started a decade ago with Swift, a global Suzuki product that engineers like Raman tuned in for the domestic market. In an industry where product life is shortening, quality R&D ensures a steady pipeline of new products. Economies of scale further enhance price competitiveness. “The older models have to be propped up with promotions and discounts. But when new models bring in good volumes, it has a direct impact on profitability,” says Chief Financial Officer Ajay Seth.
Electric Mobility Trouble
For all the growth, the company is nervous about the future in light of the government’s push towards electric cars. The transition period will be painful for the best in the business but Suzuki's lack of expertise in this area and Maruti’s large volumes make the company more vulnerable. Last month, President and COO of Suzuki Motor Corp, T. Suzuki, expressed fear that Maruti may be caught flat-footed in case of sudden electrification.
The company is taking steps to build its electric powertrain capability. The country's first lithium ion battery plant is coming up near its Gujarat factory; it is being built by the company in collaboration with Hitachi and Denso. Recently, Suzuki tied up with Toyota to develop an electric car with focus towards India. “Sometimes, competitors can be a little bit ahead product wise and we have to catch up. It is a competitive business,”says Ayukawa.“We have to provide the kind of product customers need, else we cannot survive. So, we have entered into a global tie-up for electric cars with Toyota. The first product will come sometime in 2020.” Suzuki’s deficiency in diesel technology had once threatened Maruti’s growth story in India. That time, the company showed pragmatism by borrowing technology from Fiat. This time, too, Maruti can be trusted to find solutions.