ndia’s largest carmaker Maruti Suzuki appears convinced that the Government is unlikely to bite the diesel price subsidy bullet anytime soon.

The Indo-Japanese venture, which sells more than a million cars a year and has a market share of almost 40 per cent, is betting on diesel engines to power its growth.

Maruti will “have to become a substantial diesel car maker” to maintain a market share of 40 per cent, Maruti Suzuki’s Chairman R.C. Bhargava said.

Speaking to shareholders at the company’s 31{+s}{+t} Annual General Meeting (AGM) here on Tuesday, Bhargava said: “We’re expanding diesel capacity, that’s the way the market is growing.”

Close to 35 per cent of its total sales is powered by diesel vehicles. However, with a limited number of offerings, Maruti enjoys a far less dominant 22 per cent share of the total diesel car market.

The company is reportedly developing an 800cc diesel engine to power the Alto and the Wagon R, two of the country’s top three biggest selling cars.

In March, the company finalised a Rs 1,700-crore investment for doubling its diesel engine capacity to six lakh units by 2014. It is also sourcing one lakh diesel engines annually from Fiat India.

Maruti Suzuki shares were down 0.51 per cent at Rs 1,162.65 on the BSE on Tuesday.

The AGM was a jam-packed affair, despite the tight security at the venue to guard against any potential worker protests on the sacking of 500 workers two weeks ago.

The memories of last month’s violence at the Manesar car factory seemed to be fresh on all minds as shareholders expressed support for the car market leader. Two years of labour trouble and increased competition have taken a toll on its profits and put its market share under serious threat.

The top issue for investors was the declining profitability, though they were glad that dividends remained at the same levels as last year — 150 per cent (Rs 7.50 per share of face value of Rs 5) for 2011-12. In 2011-12, Maruti’s net profits had dipped 29 per cent to Rs 1,681 crore.

“Are there any five-year plans to achieve sustained growth?” D. D. Sadhana, a shareholder, asked the management. “Do you think the cost of investing in R&D (Rs 2,500 crore at Rohtak) is too high? Will it not impact profitability? If you come up with a rights issue, we will give full support,” Sadhana added.

Chairman Bhargava responded by saying that the depreciation of the rupee was the biggest reason for lower profits and a “special drive” had been undertaken to reduce imports both in the company and for its vendors. “We will see the impact of these measures in a few years,” he said.

Greater synergies between Suzuki group companies in India, Maruti Suzuki, engine maker Suzuki Powertrain, and Suzuki Motorcycle were also suggested, which would “give better access to capital markets and increased value to the shareholder”.

Industrial relations

Shareholders said that a good industrial relations department needs to be set up, so that any dissent can be recognised early.

“Management should think of strengthening industrial intelligence,” said a shareholder.

Bhargava agreed that relations between workers and management “need to be much better”.

Around 700 of the 970 permanent workers at Manesar reported for work by Tuesday — six days after the plant restarted last week, he said.