• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

S. Muralidhar

Mr Jagdish Khattar, Managing Director ... New models and variants to drive growth.

SHAREHOLDERS of Ltd (MUL) can continue to hold on to the stock at the current price of about Rs 544. Being the car market leader with a near 55 per cent market share, with a strong leadership position in the key A and B segments and the entry-level C segment, Maruti's growth story is poised to continue into this fiscal also.

Investors can consider fresh or additional exposures to the stock at lower price levels.

The recommendation is also based on the strong support that the company is now receiving from its parent, Suzuki Motor Corporation of Japan; the cost savings that will accrue to the company during the next three years; and the products that are likely to be launched during the next 18 months.

MUL's sales of 4,72,122 units in 2003-04 represented a growth of 30 per cent over the sales recorded for 2002-03. The reasons for the sharp increase in sales for Maruti at a rate which is even higher than the industry's average is due not just to the overall increase in consumer demand, but also to the steps taken by the company to expand the reach and affordability of its cars. The new Wagon-R, the completely reworked Zen, and the new price positioning for the Baleno have all contributed to the increased appeal for these models.

Further, Maruti's new-found strategy to launch new stripped down variants, while continuing to retain the higher trim variants, has meant that models which were previously more expensive became more affordable to customers at the entry-level.

The lower trim variants of models such as the Alto and the Versa have expanded the market for these products and this is showing in the dramatic improvement in their sales.

Together, sales of the Alto, the Wagon-R and the new Zen grew by over 46 per cent and contributed the most to the company's sales growth.

The increased support and technical assistance from MUL's parent will be the other reason to expect more dynamism from Maruti in the months to come.

For one, at least two new models are expected to be launched to bridge the gap between Maruti's small cars in the sub-Rs 4 lakh category and its C segment models — Esteem and Baleno. Another new generation sedan to take on competition from the Honda City and to offer customers in the C segment a more refined and better finished car could also roll out later this year in the form of the Suzuki Liana.

In the meanwhile, after its successful in-house redesign of the Zen, MUL now plans to completely redesign and refresh the looks of its old mid-size workhorse, the Esteem.

MUL is also likely to benefit from a reduction in costs, even while its margins have been affected by an increase in raw material costs and the appreciation of the Japanese yen.

Cost-savings will come from the rationalisation of MUL's workforce, the planned increase in assembly automation, sourcing of forgings from the inhouse foundry that is being set up and the company's new policy to depreciate its dies and moulds over a five-year period instead of the earlier practice of charging it over a eight-year duration.

Other factors that may have a positive effect on MUL's bottomline could be the planned setting up of a diesel engine plant and the potential for surpluses from the company's automotive-related businesses such as its used car, insurance and owned service outlets.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Quiz

Copyright © 2004, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line