Shareholders want Maruti Suzuki to explore entry into luxury car segment

The thirty-seventh annual general meeting (AGM) of the country’s largest carmaker, Maruti Suzuki, was somewhat unusual. With a multi-year high market share of about 52 per cent in the world's fifth-largest car market, the company's shareholders want more. 

A few shareholders now want the company to move up the ladder and explore an entry into the luxury car segment. At the AGM held in the capital on Thursday, one of the shareholders pointed out to the management that it was time for Maruti Suzuki to consider competing with the likes of the German luxury trio — Mercedes-Benz, BMW, and Audi. It was suggested that since the company owns more than half of the market share, it was time to take the product range to the next level. 

However, the company said it would prefer to maintain a focus on the mass segment and offer novel features for the masses. R C Bhargava, chairman of the company, said its effort would be to provide features that were found in luxury cars in the firm’s affordable products. 

“Today, we have the new Ciaz, which has a lot of the features that you find in the ‘premium sector’ cars and at a much lower cost,” he said. He stressed on the nature of the domestic car market and its price conscious buyers. “Please remember that India is a country where people are very very price sensitive (and) affordability is a factor.” 

He said that selling high-priced and small volume products did not fit into the company's strategy. "Maruti's strength is bulk manufacturing in large scale, Bhargava said, adding," and small volume sales, what some of the premium manufacturers do, just does not fit into our business model".

However, he clarified that the company's customers would be offered the premium features in Maruti Suzuki cars. “We will keep improving our cars and we will keep improving what value we give to our customer but this decision of what cars should we make, I request you to kindly let the board decide,” Bhargava said.

Maruti Suzuki has shaken away the age-old perception of being a small carmaker in the past four years with the launch of successful premium products such as the Ciaz, S-Cross, Baleno, and Brezza. Some of these products enjoy a leadership position in their segment and helped the auto major expand its average realisation per product as well as enhance margins. A new parallel network, Nexa, dedicated to sales of premium cars also supported the strategy. Nexa now sells four products - the S-Cross, Baleno, Ignis, and Ciaz. 

The Suzuki controlled company has expanded its market share to 52.54 per cent in the April-June quarter of FY19 from 50.43 per cent in the year-ago period on the back of double-digit growth in sales. The stock has delivered a 22 per cent return to shareholders in the past 12 months and closed at ~9,223 on the BSE on Thursday. The carmaker gave shareholders a record dividend of ~80 per share for FY18. 

When one of the shareholders raised a concern over "stagnating margins", Bhargava said operating margins were not entirely in the company's hands and several external factors, including foreign exchange rate, commodity prices and global trade issues also played a role. He said despite these factors, the company's operating margins "were higher than any other automobile company in India" and among the best in the world.