Maruti to beef up its diesel engine capacity

New Delhi, August 29, 2012: Maruti Suzuki is planning 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 made these comments at the company’s AGM on August 28.

He said Maruti will be adding a 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. The additional 100,000 engines that are being sourced from Fiat will further hike this number to 700,000 units.

Maruti experienced a dip of 23 percent in its net profit to Rs 424 crore in Q1 of the current fiscal over the corresponding period of the previous year. At the AGM, shareholders shared their concern over the declining profits of the company though they were happy that the dividends had not been cut. Bhargava said that the main reason for the decline in the company’s profits 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 components through local vendors.

Maruti is also going ahead with a cost management programme and will look at ways to accelerate it further so that the company can save up to Rs 100 to Rs 200 crore annually.

Asked about the company’s strategy towards a changed UV portfolio, a reference of which was made in the Annual Report, Bhargava said that so far this space has been almost vacant for Maruti except for the rollout of the Ertiga MUV. But he does not rule out the possibility of the carmaker actively looking at this segment in the future to grow its sales. 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 also were limited mainly 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 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 and the company is looking at recruiting an additional workforce to replace the 500 permanent workers who have been sacked.

Overall, Bhargava is doubtful that the automotive 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.