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Old 1st May 2007, 09:45   #1
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Default Maruti : Not so swift any more

The company has had a great 2006-07 but the competition could creep up on it this year

A new plant in Manesar, Haryana, the runaway success of the Swift and an entry into the diesel segment. To be sure, the Rs 14,592 crore Maruti Udyog has had an exciting 2006-2007. What’s more, cashing in on the excise duty sops for small cars, the company posted sales of nearly 6.75 lakh cars, a smart 20 per cent increase over FY05-06. Next month the Delhi-based car maker, which even today commands a 50 per share of the Indian car market, will launch the SX4 sedan, a replacement for the Baleno. That will be followed by locally made variant of the premium SUV Grand Vitara. Already, four of its models– Alto, WagonR, Zen Estilo and Maruti-800 – are among the six top selling cars in the market.

That should be enough to make Maruti’s managing director, Jagdish Khattar feel relaxed. But clouds are beginning to appear on the horizon. To begin with, rising interest rates are already beginning to slow down car sales. Says Khattar, “Car sales in the last fiscal were mainly driven by lower excise duties which made them more affordable. The higher interest rates and price changes are expected to slow down sales and we believe the impact of lower customer demand will be clearly visible in the current quarter.”It’s not just the momentum in the top line that’s likely to be disturbed. The rising cost of raw materials such as steel, has already put pressure on the company’s operating margins. Despite a strong top line growth in FY07, operating margins remained flat at 13.6 per cent. And Khattar says higher input costs could continue to pressure margins.

In an effort to prop up sales, Maruti is trying to persuade banks to reduce the interest burden on customers. Besides, it’s increasing spends on promotions. Incidentally, the percentage of car sales that take place through financing has dropped from over 80 per cent to 70 per cent in the last quarter. So, it would appear that more cars are being bought without customers opting for loans. “However, it seems there are many who have decided to postpone their purchases, either through a loan or otherwise. So, it would appear that there has been an impact on sales due to higher interest rates” observes Khattar.

To beat the competition, loans for Maruti’s cars are being priced at the lowest rates in the industry– 8.59 per cent per annum, which is about 40 basis points lower than that offered by arch rival Hyundai Motor, makers of the popular model Santro.

What’s also posing problems for Maruti is the short supply of diesel engines. The company rolled out a diesel version of the Swift in January, making an entry into the diesel space. However, Suzuki Motor Corporation’s (SMC) diesel engine plant –in which Maruti also has a stake–also in Manesar, is unable to supply more than 2500 engines per month to Maruti.

Explains Khattar,”There is good demand for the diesel version of the Swift but we’re not getting adequate supplies of diesel of engines from our parent company, SMC. SMC has allotted some of the production from the plant to its Hungarian subsidiary. We are already utilising our full quote of 2500 diesel engines for the Swift.” What this means is that Maruti will not be in a position to cash in on any demand beyond 2,500 cars a month. That’s a pity because Maruti had been criticised not so long ago for its ageing portfolio of cars. And now that the diesel Swift has takers, it can’t feed the market.

Analysts, however, feel the company needs to come up with more new models. “The company’s recent launches have been well accepted, but all the models are in the A2 segment. The SX4 sedan is expected to do well, but Maruti needs more vehicles in the faster growing segments,” points out Huzaifa Suratwala, who tracks the automobile sector at Emkay Shares. The car maker’s inability to replace its fading models Gypsy, Versa and Omni is also going against the company. “Maruti needs to overhaul its entire range and should bring in more models like the Splash and Cervo. That would help it maintain its strong growth and its leadership position,” says Arvind Jain, analyst with Religare Securities. Adds an industry watcher, “Competitive pressures are only going to increase this year with Renault and General Motors already present in the budget segment and Hyundai revamping its portfolio.” Looks like it’s not going to be a smooth ride for Maruti this year.

Not so swift any more
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Old 1st May 2007, 10:28   #2
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this is a classic case of "biting off more than one can chew" :( maruti has put itself and the customers into awkward situations because of this limitation. hopefully the sx4 atleast will be better sold. otherwise maruti isnt going to impress anyone.
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Old 1st May 2007, 10:35   #3
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But why only Maruti? If this author's PoV is adopted - every other mainstream manufacturer in India will also come under fire.
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Old 1st May 2007, 10:44   #4
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Originally Posted by navdeep View Post
However, Suzuki Motor Corporation’s (SMC) diesel engine plant –in which Maruti also has a stake–also in Manesar, is unable to supply more than 2500 engines per month to Maruti.

We are already utilising our full quote of 2500 diesel engines for the Swift.”
That makes it clear that the SX4 will not come with the multi-jet diesel for now.
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Old 1st May 2007, 11:14   #5
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Factual errors.
Even Hyundai gives low rate of interest on santro.
It remains to be seen whether Maruti is willing to give this interest rate on an expensive car like the SX4.
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Old 1st May 2007, 11:32   #6
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Originally Posted by tsk1979 View Post
Factual errors.
Even Hyundai gives low rate of interest on santro.
It remains to be seen whether Maruti is willing to give this interest rate on an expensive car like the SX4.
I think Maruti is offering low IR on Estilo and Hyundai on Santro but maruti IR are lower than hyundai
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Old 1st May 2007, 15:19   #7
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Are the rates quoted here being offered by Maruti Finance? 'cause when I went for a swift TD, the sales agent was offering interest rates in the range of 14.5%-15.5% from 3-4 banks.
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Old 1st May 2007, 15:42   #8
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Originally Posted by Wimwian View Post
Are the rates quoted here being offered by Maruti Finance? 'cause when I went for a swift TD, the sales agent was offering interest rates in the range of 14.5%-15.5% from 3-4 banks.
Special low rates are offered by maruti on selected models. I suggest you call and check.
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Old 1st May 2007, 16:02   #9
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Yes the Low interest rates are available for select models only,and swift does not fall in this category. However I think there are some freebies with the petrol swift,nothing for the swift diesel though.
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Old 1st May 2007, 17:04   #10
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Originally Posted by rahul_intlad View Post
Yes the Low interest rates are available for select models only,and swift does not fall in this category. However I think there are some freebies with the petrol swift,nothing for the swift diesel though.
those supposedly low interest rates are offered on the models that dont budge and i think some of those models would be M800, Omni and maybe even the petrol swift which is lying uncared for after its diesel sibling is launched.
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Old 2nd May 2007, 01:18   #11
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I betcha it'll not only seriously start budging but also moving if they were to introduce an auto transmission in the swift Zxi!! Believe me there are many out there who'll buy that model for all its bells and whistles.

Also there isnt any other car in that segment with an auto tranny - so that'd be a monopoly. Funny MUL cant see it but we can. Are you listening Mr Khattar???
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Old 2nd May 2007, 10:17   #12
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This is a great opportunity for FIAT/TATA. Get Palio/Indica with next generation 1.3JTD on the road by October-Dec 2007; before MUL finds a way to ramp up. The cost differentrial (for FIAT/TATA cars) between diesel and petrol model will not be more than 50K. (Maruti VDi and VXi diff is about 70K. Fiat being the owner of JTD, don't have to pay royalty.)
Fiat/Tata plant at Ranjangaon has capacity of more than 1L engines and transmission. Imagine, PALIO SLX with JTD @ 5.0L on road in Mumbai(4.5L ex-showroom price) or top end Indica still less. It will be end of SwiftD and Getz Crdi.

Last edited by cartech : 2nd May 2007 at 10:19.
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Old 2nd May 2007, 10:25   #13
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Quote:
Originally Posted by cartech View Post
This is a great opportunity for FIAT/TATA. Get Palio/Indica with next generation 1.3JTD on the road by October-Dec 2007; before MUL finds a way to ramp up. The cost differentrial (for FIAT/TATA cars) between diesel and petrol model will not be more than 50K. (Maruti VDi and VXi diff is about 70K. Fiat being the owner of JTD, don't have to pay royalty.)
Fiat/Tata plant at Ranjangaon has capacity of more than 1L engines and transmission. Imagine, PALIO SLX with JTD @ 5.0L on road in Mumbai(4.5L ex-showroom price) or top end Indica still less. It will be end of SwiftD and Getz Crdi.
Power of Dreams .....................
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Old 2nd May 2007, 11:05   #14
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Originally Posted by cartech View Post
The cost differentrial (for FIAT/TATA cars) between diesel and petrol model will not be more than 50K. (Maruti VDi and VXi diff is about 70K. Fiat being the owner of JTD, don't have to pay royalty.)
I dunno about other cities, but here in Kolkata the difference between VDi and VXi is close to 100K after taking into consideration almost 22K worth of discounts on the petrol.
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Old 2nd May 2007, 12:03   #15
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Quote:
Originally Posted by cartech View Post
This is a great opportunity for FIAT/TATA. Get Palio/Indica with next generation 1.3JTD on the road by October-Dec 2007; before MUL finds a way to ramp up. The cost differentrial (for FIAT/TATA cars) between diesel and petrol model will not be more than 50K. (Maruti VDi and VXi diff is about 70K. Fiat being the owner of JTD, don't have to pay royalty.)
Fiat/Tata plant at Ranjangaon has capacity of more than 1L engines and transmission. Imagine, PALIO SLX with JTD @ 5.0L on road in Mumbai(4.5L ex-showroom price) or top end Indica still less. It will be end of SwiftD and Getz Crdi.
Very optimistic .. if wishes were horses ... blah blah ..
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