Maruti may see volume drop this fiscal year

NEW DELHI Mon Nov 21, 2011 8:10pm IST

Chairman of Maruti Suzuki India R.C. Bhargava speaks during an interview for the Reuters India Investment Summit at his residence in Noida on the outskirts of New Delhi November 21, 2011. REUTERS/B Mathur

Chairman of Maruti Suzuki India R.C. Bhargava speaks during an interview for the Reuters India Investment Summit at his residence in Noida on the outskirts of New Delhi November 21, 2011.

Credit: Reuters/B Mathur

NEW DELHI (Reuters) - Maruti Suzuki may see declining sales volume in the current fiscal year as the country's dominant car maker suffered heavy production losses due to a labour strike, while demand for cars remains weak in Asia's third-largest economy.

"We'll be lucky if we break even with last year," Maruti Suzuki Chairman R.C. Bhargava said in an interview for the Reuters India Investment Summit.

Maruti Suzuki, which specialises in small models, sold 1.27 million cars in the fiscal year that ended in March, an increase of 25 percent.

"So, it might even be slightly less than last year. There are still four months to go. Let's see how it goes but I doubt if we'll have any growth this year," he said.

Bhargava had said in August he expected Maruti, 54.2 percent-owned by Japan's Suzuki Motor Corp, to post single-digit sales growth this fiscal year.

He said on Monday he expects the Indian automobile industry to grow 2-3 percent this fiscal year, compared with the record 30 percent growth it had clocked a year ago.

Slowing economic growth, rising interest rates and fuel prices as well as falling stock markets have dampened sentiment in the Indian auto market.

"While first-time car buyers...have continued to buy cars, the people who used to replace cars or buy a second or a third car in their family, those people have deferred buying decisions this year," Bhargava said.

He remained optimistic for a demand revival but said it was difficult to give a time frame.

Maruti shares, valued at $5.2 billion, are down by over a third this year, underperforming the sector index and the broader market that have lost about 19 percent and 22 percent, respectively.

Maruti, which until last year sold nearly every other car in India, faces tough competition from global car makers such as Hyundai Motor Co, Ford Motor Co, General Motors Co and Honda Motor Co and has seen its market share slide to just over 40 percent.

Bhargava said it was "a little bit unfair" to calculate this year's market share as Maruti has been hit by one-off factors such as labour unrest and inadequate capacity to meet a surge in demand for cars that run on less-expensive diesel fuel.

"Realistically, we would expect to keep around 42-43 percent of the market," Bhargava, a former official with the elite Indian Administrative Service, said at his plush bungalow in the outskirts of New Delhi.

Maruti was hit by a labour strike at a key plant in Haryana, where workers wanted to leave their existing union to form one of their own.

The unrest led to a production loss of about 83,000 cars, or almost half a billion dollars in output, while buyers were made to wait longer for the cars they ordered.

DIESEL CARS IN DEMAND

Bhargava said recent rises in petrol prices have boosted demand for diesel cars, but Maruti did not have capacity to meet the demand.

Maruti last week raised diesel car prices by up to 10,000 rupees ($192), taking advantage of the demand for the segment as input costs continue to go up.

"We have a waiting list of diesel cars and we have surplus capacity of petrol cars," he said.

Maruti is in advanced talks with Italian automaker Fiat SpA to source diesel engines to boost its production and expects to receive supplies starting in January, he said.

Europe has traditionally been the biggest export market for Maruti, but the company is now trying to build the export market beyond the debt crisis-racked continent, focusing on Southeast Asia, Africa and Latin America, Bhargava said.

A sharp fall in rupee against the dollar and the Japanese yen is a "very serious" concern for Maruti, which pays for imports of components in these currencies, Bhargava said.

Maruti, which has installed capacity to make about 1.5 million cars a year, is expanding one of its existing plants to reach 1.75 million annual capacity.

The company is in the process of buying land to build a new factory in Gujarat, but will start work at the plant depending on the demand scenario and when it feels it needs to expand capacity beyond 1.75 million, Bhargava said.

"Today, I can't say whether that will be in 2015 or 2016 or 2014. It is difficult to say."

(For summit blog: blogs.reuters.com/summits/)

(Reporting by Anurag Kotoky and Devidutta Tripathy; Editing by Aradhana Aravindan and Tony Munroe)

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