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    Maruti Suzuki intends to become the number one player in SUVs in 2023-2024: Shashank Srivastava

    Synopsis

    Maruti Suzuki India, has announced that it will increase car prices from April due to rising commodity prices and regulatory requirements. While the company had previously implemented minor price hikes to balance demand during the Covid-19 period, it finds the recent price levels inadequate. Maruti Suzuki's Executive Director, Shashank Srivastava, revealed that the company plans to release 16 new brands in the upcoming years to fortify its product line and increase market share in the SUV sector.

    Shashank Srivastava, Maruti Suzuki-1200ETMarkets.com

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    "We will increase prices in April. The price hikes that we have taken in the past one and a half years have been very, very small. The reason for those small price hikes was that during the Covid period, manufacturers, including Maruti Suzuki, were not sure how much the demand would bounce back. As market leaders, we are very conscious of our responsibility, that we are also in some sense responsible for the overall demand, says Shashank Srivastava, Executive Director, Maruti Suzuki India
    .
    Also, though commodity prices have come down from their peaks, they are still very, very high compared to what they were two years back. For example; automotive steel prices two years back was Rs 38 a kg. It went up to Rs 84 and now has come down to around Rs 66-68 a kg.


    The last time we spoke, you said, the bread is toasted and the butter is not missing. So is the bread, butter, and cheese in place now for Maruti?
    It depends on how much butter you want to put, depending on what kind of paratha it is. But essentially there are some models where you have a long waiting list, where you see very little discounts, and that is good overall. They are particularly larger cars. Then there are the smaller cars, where there are still some issues, but availability is much better. I would say in volume terms, those cars are also doing very well.

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    We spoke to several car dealers yesterday as we wanted to assess and understand how the entire festival season demand has been, Gudi Padwa in Maharashtra, a lot of festival demand, which typically happens in the South because of Navratra and other events. We get a sense that this time around, it has not been a great festival season. Is that true?
    I would say, of course, the numbers are still to come. The retail climbs up every Monday, irrespective of whether it is an auspicious period or not. The auspicious period, of course, is just starting. I would expect a lot of retail sales still to happen by March end. The estimate in the industry is that it would be in the range of about 342,000 to 345,000. The wholesale is expected to be in the 330,000-335,000 range. These are by themselves a good number because over last year, they are a growth of 3% for wholesale estimates and 2% over last year for retail. But yes, there is a sense in terms of the other parameters of bookings and inquiries that there seems to be a leveling off after some great quarters of consistent demand patterns.

    You have already intimated that from 2023 April, which is next month, there will be a price hike. You are increasing prices when commodity prices are down. Why is that? Shouldn't it be the other way around?
    If you compare the commodity prices, what they were two years back, they are still very, very high. I will give you an example; steel for example, two years back was Rs 38 a kg. I am talking about automotive steel. It went up to Rs 84. It has come down to around Rs 66-68 a kg. You might say that it has come down, but actually when you compare it with two years back, it is almost double. The same goes for copper, which was $5,200 two years back. It went up to $10,400. Now it is still around the $9,200-$9,300 mark. The same goes for aluminium and even the rare metals.

    The thing is the price hikes that we have taken in the past one and a half years have been very, very small. The reason for those small price hikes was that during the Covid period, manufacturers, including Maruti Suzuki, were not sure how much the demand would bounce back. As market leaders, we are very conscious of our responsibility, that we are also in some sense responsible for the overall demand. Therefore, the increases in the prices that you saw were not enough to cover the commodity prices. That is the reason why the profitability in the last two years has actually come down for OEMs.

    The other factor is the regulatory requirements, which are changing from April 1. The RD and the OBD-2 norms means that there will be spec changes in the engine of the cars, and that also is an additional cost. These are the two main reasons we have decided to increase the prices from April.

    Are you saying that even with the RD norm implementation, there are going to be no more price hikes, at least in the offering from Maruti because a couple of your peers have already hinted at a price hikes coming next month?
    We have said that in April we will increase the prices. That is what we filed in the stock exchange yesterday. So there will be a price hike. The only thing is that the price hikes will be different across models because it depends on what type of changes you require for meeting those RD norms. Remember, a lot of the models of Maruti Suzuki, have already made those changes. In fact, only a few models remain for us to convert to the new specs to meet the RD norms.

    Any implication on what the margin picture could look like for the company?
    Of course, I will not be able to give you a forward estimate of what the margins would be. The cost structure as of now remains the same. Increases in prices theoretically lead to a better margin, but it all depends on how the costs move. And that includes the material cost, which is 75-77% of the cost structure of any auto OEM.

    I have had the pleasure of tracking Maruti for almost 20 years now, and almost 20 years in its listed avatar. It is not for the first time that commodity prices have gone higher. A cycle is at play. But Maruti in 2-3 years always has managed to come back to its long term margin average, which is in the early double digit. Can I safely assume that ultimately Maruti will go back to its long term margin average of early double digit?
    I am probably not the best person to reply to this question. It depends on the competitive scenario, the strength of our models, how they are doing in the market, and also the general scenario of the economy. But you are right, the entire organization obviously wants to get back to a higher level of profit.

    From a pure stock market standpoint, investors always look at the product pipeline. That always acts as a near-term trigger to generate sales and momentum. For 2023, Maruti has one of the strongest and one highest launch pipeline. True or false?
    It is true that we have unveiled two very strong SUV products, the Jimny and the Fronx. We have had bookings and we will start selling those vehicles sometime in April. The Fronx and Jimny together have got almost 40,000 bookings as of today and that is a big foray that we have done into the SUV sector. The SUV segment is a larger segment now and we were a little weak there. Our market share there was only about 11.5% last year. So, we do hope to become the number one SUV player in this financial year 2023-24.

    We have a very strong product pipeline. We now have 16 brands in the PV market as against 14 earlier. Going forward, you will see a lot of new product launches from Maruti Suzuki.

    I am curious to understand what the SUV portfolio in particular is looking like?
    The hot and techy Brezza in February was the highest selling SUV in the country. So, it does around 15,000 a month, which is pretty good. It is in the compact SUV space, which is the largest segment in the industry and we have bolstered it with two new products, the Jimny and the Fronx, which come in the Nexa channel. The Grand Vitara, which we introduced in September last year, has garnered more than 130,000 bookings. There is a long waiting list and we are selling whatever is available and that is a good sign for next year as we try to become the number one SUV player in the country.

    The SUV market, whether it is urban SUV or luxury SUV, now accounts for almost 35% to 40% of the new car sales. Is that number right or wrong because that is the number which has come to us from Mahindra & Mahindra?
    Actually, the SUV segment is now about 43% of the market and out of which the compact SUV segment is about 22% and about 19.5% is the mid SUV, where the Vitara and Creta and Seltos play. About 1.3% is the premium SUV sector. So combined 22.5, plus 19.5, plus 1% is equal to 43%, that is what the total SUV market is.

    What would be the long-term implications of this big change in the passenger car market? If this is a major shift where 40% plus total new cars being sold are SUVs, what would be the medium-term implications of that for Maruti and for the industry?
    Larger cars generally give higher margins. But it also depends on the level of competition that you have in that segment even if the vehicle is large. But yes, as a general principle, larger cars give better margins. Lower-end cars are still a substantial part of the market. In fact, this year, the hatch market will have a growth of 20% and will end up with a 13,60,000 volume which is very large, about 36% of the overall market against a 43% market for the SUVs. So, small are still a very large segment.

    We are dominant in small cars. Our market share there is 70% plus. But in SUVs, it is a challenge because we are not the number one player in SUV, but we intend to become the number one player in this year, 2023-2024.



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    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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