After 30 years of selling cars in India, Maruti Suzuki is embarking on the next phase of its journey with an eye on selling 3 million vehicles annually.
IHS Automotive perspective | |
Significance | Maruti Suzuki has unveiled a road map for the next 30 years, eyeing sales of 3 million vehicles annually. |
Implications | Maruti hopes to derive huge benefits from the planned launch of fuel-efficient and eco-friendly models, as well as ongoing investments in production and research and development activities in India. |
Outlook | The automaker's aggressive strategy is designed to maintain its leadership of the highly competitive Indian vehicle market, which has begun to show signs of a revival in recent months. It will be interesting to see how the company shapes up in the coming years, particularly as global automakers enter the Indian market amid gradually changing consumer preferences towards fuel-efficient "non-Maruti" models. |
Marking the completion of 30 years of selling cars in India, Maruti Suzuki has unveiled an interesting road map that spells out its plans for the next 30 years, according to local publication the Economic Times. The blueprint, "Maruti 2.0", foresees an increase in investment in new initiatives, with a renewed focus on innovation, research and development (R&D), and customer outreach. Maruti chairperson R C Bhargava revealed in the company's annual report for financial year (FY) 2013–14, "2013–14 was a significant milestone year for us, as in December we completed 30 years of selling cars. It is a good time to review what we have achieved and what we should do in our next 30 years – Maruti 2.0." The automaker has set a target of selling 3 million cars annually. However, no timeline has been given for this target. In the short term, Maruti is aiming to achieve sales of 2 million units per year in a phased manner in the next five years. Bhargava explained that the company would be at the forefront of efforts to make India a significant player in the global automotive market.
Maruti has identified a number of strategies to help it achieve its sales targets:
- Strong focus on R&D: Maruti believes that the ongoing investments in production and R&D will go a long way towards helping it achieve its growth plans. Underlining the importance of R&D, Bhargava explained, "The much higher availability of funds with Maruti would enable [the] company to strengthen its R&D and develop, and maintain the much larger number of models required to achieve sales of 3 million cars."
- New model launches: Bhargava is mindful of the fact that Maruti needs more mass-market products if it is to achieve the kind of sales growth it is aiming for. "If we are thinking of doubling or tripling our volumes, the number of products [models] has to correspondingly go up. These products will have to be refreshed periodically also. The bar of technology, performance and features has to also go up considering the competition in the future. We have to build in-house R&D capability and capacity in line with this need." Maruti is planning to increase the fuel efficiency of its entire model line-up, while it also plans to offer the option of diesel, compressed natural gas (CNG), or liquefied petroleum gas (LPG) in its existing models. It is also said to be developing 800cc compact diesel engines for the Indian market, as well as placing special emphasis on electric vehicles and hybrids.
- Entry into new segments: Besides maintaining its strong position in the small-car segment, Maruti also believes that entry into new segments to bring about additional growth is essential if it is to achieve its targets. "All our actions need to be assessed in the context of being able to sell two million cars in a globally competitive market and enhanced customer expectations. For instance, while we continue to provide compact cars, we will also enter new segments like SUVs/MUVs with full bandwidth," Bhargava said. In an interesting development, Bhargava revealed that the company was also open to exploring opportunities in the light commercial vehicle (LCV) space, adding, "Similarly, we will try our own capability with compact diesel engines even if there is little precedence."
- After-sales service: In addition, the company will also invest in strengthening and de-risking its infrastructure for sales, service, and spare parts, essential if it is to cater to sales of 3 million cars a year.
Outlook and implications
Maruti has been taking every possible measure to remain competitive in the Indian market. Its efforts have included new model launches, continuing investment plans, and a focus on non-traditional markets within India to garner additional sales, all of which have largely worked in its favour so far. The automaker remains positive about the support of its parent company, which has pledged to invest JPY50 billion (USD487.9 million) in a new plant in Gujarat (see India: 29 January 2014: Maruti's Q3 FY 2013/14 earnings increase 35.9% y/y, parent company Suzuki to invest in Gujarat plant). Although this move was somewhat surprising, Maruti has welcomed the development, saying that it can deploy its INR75 billion (USD1.2 billion) in cash reserves for other activities, including marketing and R&D, among other things. "We expect the benefits to start coming by 2018. We will double our return on capital – while Maruti's own production capacity will stay at 1.5 million, we will actually sell 3 million cars without having to bother about the manufacturing of the other half," said Bhargava. The company claims that its plans not to invest in the Gujarat manufacturing facility will make it richer by up to INR105 billion over a period of 15 years (see India: 9 June 2014: Maruti Suzuki hopes to earn USD1.8 bil. over 15 years by forgoing capacity investment). This is likely to be one of the many reasons for Maruti's generally positive stance regarding its business operations.
The automaker's target is ambitious and will prove extremely tough to meet, particularly as global automakers enter the Indian automotive industry. Commenting on the ambitions, IHS Automotive senior forecasting analyst Puneet Gupta says, "Maruti is planning for a big leap with a new investment in Gujarat. While most of the companies are moving down the segments, Maruti Suuzki is trying to move up the ladder in terms of its future product portfolio. Also, its plan to enter into the fresh area of LCVs could be serious for market leaders in this segment like Tata Motors and Mahindra. Maruti Suzuki is trying to leave no stone unturned to maintain its market share in the country in the years to come. However, we believe that Maruti Suzuki will remain market leader but its market share is bound to come down with many new global entrants into the Indian market." In addition, local players are also increasing competition, as witnessed with number-two Indian automaker Tata, which launched the new Zest compact sedan in India this week, with high hopes for an impressive sales performance (see India: 13 August 2014: Tata Motors launches Zest compact sedan in India). Hyundai India is also devising plans to better concentrate on the domestic market and is gradually freeing up production capacity at its plants (see India: 12 August 2014: Hyundai India halts exports to Europe, unveils all-new Elite i20 and India: 13 August 2014: Hyundai India studies UV segment, plans new models in near future).
According to IHS Automotive's light-vehicle sales forecast data, the short- and medium-term prospects for the automaker are expected to remain under pressure somewhat, with projections of a mild decline in market share in each year, despite the introduction of promising new models. Maruti is witnessing better-than-expected success for the popular Celerio small-car model this year, while the entry of the Ciaz, which is expected to happen some time next month ahead of the festive season in the country, is further expected to offer support for the automaker. Among other models in the pipeline for the automaker are an all-new B-segment hatchback, a small pick-up, and an all-new SX4 B-segment sport utility vehicle (SUV) in 2015, according to our data. However, these models are until 2019 expected to be challenged by offerings such as Hyundai's Grand i10 and EON and Ford's all-new Ka small car. Maruti is expected to maintain sales volumes of around 1.62 million units in 2014 and 2015, while its 2016 sales volumes are expected to witness a spike thanks to an expected surge in sales of the Swift Dzire and Wagon R. Starting from 2020, IHS predicts that Maruti will post steady growth rates following the introduction of an all-new Celerio small car, which will also be sold as the Global Small Car in global markets. Maruti is poised to reach the 1.25-million-unit sales mark in 2020, 1.40 million units in 2022, and then exceed and remain above the 1.5-million-unit mark starting from 2025.