Maruti to beef up its diesel engine capacity

Maruti Suzuki plans to beef up its diesel engine capacity from 300,000 to 600,000 units by 2014. This will enable it to meet the changing shift in market dynamics in favour of diesel cars versus petrol, chairman R C Bhargava told Autocar Professional on the sidelines of the company’s AGM on August 28. He said Maruti will be adding capacity of 150,000 engines next year and a similar number in 2014 to reach this target and enable it to hold a 40 percent market share. This follows the carmaker's announcement of investing Rs 1,700 crore in a second diesel engine facility at Gurgaon earlier this year. The plant will go on stream by mid-2013. The additional 100,000 engines that are being sourced from Fiat will further hike capacity to 700,000 units. Maruti saw a dip of 23 percent in net profit to Rs 424 crore in Q1 of 2012-13 over Q1 2011-12. At the AGM, shareholders shared their concern over the declining profits. Bhargava said that the main reason for this is due to the volatility in foreign exchange with the appreciating yen and the depreciating rupee against the US dollar that has increased import costs. Maruti, he said, is looking at increasingly localising part imports, especially of inner parts, through local vendors. The company is also going ahead with a cost management programme and will look at ways to accelerate it further so that it can save up to Rs 100 to Rs 200 crore annually. Asked about the company’s strategy towards expanding the UV portfolio, in view of the growing customer preference for the SUV/MUV segment, Bhargava said that so far this space has been almost vacant for Maruti except for the rollout of the Ertiga. But he does not rule out the possibility of the carmaker actively looking at this segment in the future. So far Maruti has been a predominantly small car and petrol segment player and its earlier foray in the utility vehicle segment with the Grand Vitara and the Gypsy was limited in the absence of a diesel engine. Sales too were restricted primarily to the defence segment. With some shareholders unhappy with the company for its apparent failure to prevent the labour violence at its Manesar plant on July 18, in the absence of a strong industrial intelligence network, Bhargava said anyone can point an accusing finger after the event. Even the government could be accused of an intelligence failure in subsequent bomb attacks at Mumbai. According to him, the special investigation team appointed by the Haryana government has to identify the reasons for the violence at Manesar. The view was reiterated by Osamu Suzuki, the visiting chairman of Suzuki Motor Corporation. The lockout at the Manesar plant following the mob violence was lifted on August 21 with 300 workers reporting for work on the first day. About 900 permanent workers have re-joined work since then; Maruti is looking at recruiting an additional workforce to replace the 500 permanent workers who have been sacked. Overall, Bhargava is doubtful that the auto industry will be able to notch a growth of 10 percent in the current fiscal in terms of car sales in view of the sluggish growth in the industry. He expects this segment to grow between 8-8.5 percent this year. SHOBHA MATHUR