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Maruti Suzuki is confident that the future demand for diesel cars in the country will remain at about 40 per cent of total sales.
Mr Shinzo Nakanishi, MD & CEO, Maruti Suzuki, said that though the proposed increase in diesel car excise duties will hurt sales, the shift in demand to diesel cars is likely to stay for the future.
“Diesel penetration in the industry has gone up to 42 per cent from 36 per cent in the last two years. For Maruti, the increase has been to 24 per cent from 17 per cent. With Fiat-sourced engines, diesel car sales in May accounted for 38.5 per cent of our sales,” he said.
Petrol car sales have slumped ever since petrol fuel prices starting rising since they were de-regulated in June, 2010. With most manufacturing capacity current set up for petrol cars, Maruti has had to cut production at its Gurgaon plant. About 40 per cent for its 13 lakh petrol engine capacity lies unutilised.
The irony is that the inventory for petrol cars is piling up, while popular diesel models such as Swift, Dzire and Ertiga continue to command long waiting periods on shortage of engines.
Merger
To speed up addition of diesel engine capacity and reduce costs, Maruti's board approved the merger proposal of Suzuki Powertrain India Ltd (SPIL) with itself on Tuesday.
SPIL supplies about three lakh diesel engines a year to Maruti, while petrol engines are made in-house. Currently, Maruti has a 30 per cent stake in SPIL, while the rest lies with Japanese parent Suzuki Motor Corporation (SMC).
With Maruti proposing a fresh issue of 13.17 million shares to SMC in lieu of its majority holding in SPIL, SMC's stake in Maruti will go up from 54.2 per cent to 56.2 per cent.
“This promises to bring multiple benefits, especially when we consider the growing dieselisation of the market,” Mr Nakanishi said.
Benefits also include a single management control over sourcing, localisation, production planning, finance, capital structuring and administration.
Mr Ajay Seth, Maruti's CFO, said that the merger would add Rs 550 crore of debt to Maruti's books and Rs 130 crore of cash.
Maruti Suzuki shares on the BSE were up 3.34 per cent to Rs 1,146.30 on Tuesday.
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