Maruti Suzuki steps on gas despite covid hurdles
The carmaker plans to increase the daily production rate to more than 7,000 cars
NEW DELHI: Maruti Suzuki India Ltd is planning to increase output by 200 cars per day from May, two people aware of the company’s plans said, as the country’s largest carmaker bets that demand for personal mobility will continue amid the resurgence of the pandemic.
The increase in output will take the daily production rate to more than 7,000 cars, the people cited above said on condition of anonymity. Parent Suzuki Motor Corp. has recently added a new assembly line in its Gujarat factory, and production will be increased as a consequence.
Maruti witnessed a sharp recovery in production and sales in the second half of last fiscal as sales of its compact cars picked up due to a shift in personal mobility to avoid coronavirus infections and quicker recovery economic activity. Some of Maruti’s popular products, like Baleno and Swift, have long waiting periods, and most of the company’s dealers have less than 20 days of stock with them.
According to one of the two people, Maruti has guided for an increase in production as a result of the new assembly line, which has started operating. The company has not indicated any reduction in production during the first half of the fiscal, the person said.
“The demand in the market before the second wave was quite strong, and the company expects the momentum to continue once cases come down. Also, the shift towards personal mobility will get accelerated in the coming days since people will remain apprehensive of public transport,” the person said, requesting anonymity.
Mint on March 4 reported that Maruti plans to make around 220,000 and 240,000 vehicles and launch 5-6 new vehicles during the current fiscal year.
Achieving the ambitious production target will mark a sharp rebound for India’s largest carmaker, which is set to report lower sales for the second straight year in FY21 because of disruptions caused by the implementation of new emission and safety norms, followed by the pandemic.
Although Maruti is trying to boost production, it remains to be seen if it will be able to meet the target, given the current challenges, said the second person.
“The semiconductor issue is yet to be resolved for most automakers, and then we have the covid situation, which impacted customer sentiment. Given the production schedule of the company, one can expect that Maruti is expecting a comeback like last year. The low inventory level at dealerships is also not letting them reduce production,” the person said.
“The Maruti stock has underperformed (27% v/s Nifty and 23% v/s NSE Auto Index) in the past six months, impacted by market share loss and pressure on margin, despite a strong volume recovery. We see both these concerns abating as the product life cycle improves and price increase/discount moderation drives recovery in profitability. We expect 30% volume growth in FY22E and positive evolution of margin,” analysts at Motilal Oswal Institutional Equities said in note to clients.