Maruti to add 2 million units in fresh capacity between 2024 to 2030: RC Bhargava, Chairman, Maruti Suzuki
Despite disruptions in the supply chain, Maruti Suzuki, the country’s largest car maker posted its highest-ever volumes, exports, turnover, and profits in FY23. The company for the first time ever, breached a turnover of Rs 1 lakh crore. Here are edited excerpts from R C Bhargava’s interaction with Media post FY23 earnings.
Review of FY23
FY23 has been a much better year than the previous year and this has happened despite the fact that the 22-23, witnessed all kinds of headwinds, interest rates went up, inflation went, we had commodity prices moving up, the semiconductor situation was fluctuation, we have lost a lot of production, hence the result of 22-23 are far better than the previous year.
We have been able to get this far, because both the government and the RBI have managed the various problems in the economy because of inflation, in a manner that has enabled India to perform much better than the other countries.
Coming to the results, we have one major landmark which we crossed Rs 1 lakh crore, turnover landmark – in the pure manufacturing and engineering manufacturing, I can’t think of any companies who have done it.
The result of this has been, the profits have more than doubled, and we have been able to declare the dividend which is the highest ever. Unfortunately, we could not meet the target of 2 million we fell short by 34,000 vehicles, which of course largely the fault of the non-availability of semiconductors.
On the prospects and challenges of FY24
The year FY24 will continue to have problems relating to semiconductors. In this quarter, things are worse than last quarter in terms of supplies, there is no improvement as we were thinking about, hopefully, the next three quarters will be better.
We think, this year we should be able to grow faster than SIAM’s forecast of 5-7% – thanks to new SUV launches. We will do better, how much, I can’t say. We shall comfortably cross the 2 million mark, how much more that we delivered will be largely determined by the semiconductor availability.
View on the demand momentum
I don’t think we have any problem selling everything which we have been producing these days. We have a back order of over 4.12 lakh. The production of a car is a bigger issue than finding a buyer to sell the car.
Interest rates went up in FY23, as the inflation had gone up to the highest level, the rates went up by 2.5% during the year. The general expectation is that now we have reached a peak. During the course of the year, we should start seeing the cycle reversing and the interest rates starting to come down. I am not worried about interest rates, the worry was much more last year. If we could manage FY23, with a somewhat more benign environment in 23-24, we should not have any significant difficulties.
One way of reversing this is for the economy to grow faster. If the economy grows faster, then people will have the capacity to buy bigger cars, which is what has happened in most parts of the world. It is not something that will cause sleepless nights. We are doing well, we are expanding our production capacity, despite what has been happening to the small cars segment, there are a number of strengths we have in the marketplace, where we can grow. Due to the limitation of supplies, we are not able to grow fast. Things change in life and we have to adjust to them.
Semiconductor challenges
During Q4, Maruti Suzuki has lost about 38000 units. We have lost 1.7 lakh vehicles in FY23, this year the number will be less. The present indication is that the numbers will be better and it should be less than 1.7 lakh, but it is very difficult to predict.
The semiconductor situation is a little worse in Q1 FY-24 than the last quarter, the loss in Q1 may be the same as the production in Q1 of FY23. While in the first quarter, there is some constraint, we hope that the situation will be better than the second quarter. The visibility is still a challenge.
Plans for another million
Along with Suzuki, we have been looking at the future demand for the country and what could the likely market size over the next 8 years or so be, and we feel besides Kharkhoda, there is a potential of about a million units more. Even if you utilise the Kharkhoda plant, we will still need more vehicles to meet both domestic demand and exports. As you might have seen in the press note, the board has in principle approved that Maruti should put up to 1 million additional capacity.
The work on the new plant will start and be carried out simultaneously with Kharkhoda, the investment in the new plant is likely to be higher than the money we will put in at Kharkhoda.
We are yet to determine, where will this be put – phasing of capacity and specific financing of the project. What is clear is that we will have to go ahead with Kharkhoda, hopefully, if the market goes up, additionally another project of 1 million units. Both these expansions will be financed from our internal reserves, we will not borrow or anything.
We want to be ready to put in more capacities in a short period of time if the market requires it, we don’t want to be caught napping if the market suddenly develops and we are not ready.
Role of exports
There is significant change which has happened on the exports front. In FY23, exports went up to 2.9 lakh units, for the second consecutive year, we were the largest exporter of cars. We could have exported more, but there is a constraint on production.
We have made an estimate of what the future looks like, it is estimated that by the end of this decade, by 2030, exports could reach as much as three quarters of a million cars – that is a substantial volume – which is equal to the Suzuki Motor Gujarat capacity.
On future product plans
The outlook for small cars continues to be negative, I don’t see much changing in that respect, the market is much stronger in the SUV segment. One new change we will see in FY24 is that we will be sourcing all new products from Toyota, it will be a strong hybrid, and it will be a three-row vehicle, and top of the line vehicle. I don’t think the volume will be large, it is a path-breaker vehicle in a sense, it will be carbon friendly and with Toyota’s technology, it will be launched roughly in two months or so.
These volumes may not be large, the numbers will ultimately depend, once we start selling them. As the vehicle gets into the market, people will start seeing the performance. Today the same vehicle that Toyota has launched has a booking of over 12 months waiting. How many vehicles we will get from them, will also depend on their capacity and also their needs.
The roadmap and future EV ambition
The electric vehicle program continues in Gujarat. By the end of 2030, we will be introducing 6 different models and EVs will be largely in the SUV category, though we are moving in other categories also.
The fear that Maruti is slow in moving to EV is not going to make a difference, these vehicles will take a large market share in those segments.
We continue to work towards carbon neutrality and see what will be best suited to the Indian market, beside EV, CNG, and ethanol, we will continue to do that and generally, all our programs will continue.
Is there a need for a dedicated EV factory and what about localisation of batteries?
Battery localisation is already happening, because Suzuki has put up a plant for battery manufacturing and the area of battery manufacturing is in the hands of Suzuki Japan -so we are not directly involved in that. Suzuki will continue to make batteries in India, as far as a dedicated plant for EV, I am not sure, we will need a dedicated plant, depending on the volumes of the car, we will have to adjust capacities to that. I will need a dedicated plant if the volumes swell to 1 million units.
We feel the battery plant and EV plant should be close to each other, that is one of the considerations. Decisions will be taken based on what is the most efficient way of producing it.
CAPEX plans for FY24 and cash balance
Last financial year we invested about Rs 6,329 crore and this year the plan is to invest Rs 8.000 crore. Cash Balance at the end of the financial year – slightly over Rs 45,000 crore.
Fall in market share?
The market share depends on two factors, the company’s own capacity to produce and sell vehicles, if I am producing and selling everything which I have the capacity for, but the market grows faster, then my market share will still fall. If the market does not grow much, and I am able to sell more cars, even though I may not be using the capacity, my market share will grow.
It is not a figure which is totally under the control of any manufacturer. Market share is dependent on external factors, which you cannot control. The intention of Maruti Suzuki will always be to get close to 50% market share, which we enjoyed in the past. We want to get close to that share.
The SUVs today account for 43% of the overall market. We have launched a number of vehicles in that segment, and since this is where the market is moving, we will grow the same way.
Path to carbon neutrality
My views remain, India will need a mix of technologies to expedite and move faster towards carbon neutrality – relying on one technology will never get us to our destination faster, as the mix of technology will. I think the government is aware of it, there are limitations because of which they can’t move faster in some areas. I have no doubt that the government will also ultimately work out what the optimal package for carbon neutrality is.