 "Maruti Suzuki Chairman R C Bhargava")
Maruti Suzuki India (MSIL), the country’s biggest carmaker, plans to invest about Rs 45,000 crore to double its annual production capacity to 4 million units in the next eight years.
“The era before us is going to be very uncertain, very challenging… It depends on how inflation goes, but at the moment we estimate the cost to be about Rs 45,000 crore for [additional capacity of] 2 million cars,” MSIL Chairman R C Bhargava said while speaking at the company’s 42nd annual general meeting on Tuesday.
Bhargava said he would also take up the suggestion by shareholders for a stock split with the board. “I accept it will certainly increase the ability of people to trade in [Maruti] shares, because the price of each share at present is around Rs 10,000,” he said. Shares of MSIL ended the day’s trade at Rs 9,634 apiece, up 0.4 per cent, on the BSE.
In order to execute its ambitious ‘Maruti 3.0’ plan, Bhargava said the company needed to reorganise and focus on different powertrains — electric vehicles, hybrid vehicles, compressed natural gas (CNG), and ethanol.
He was justifying the company’s decision to issue equity shares on a preferential basis to parent Suzuki Motor Corporation (SMC) to acquire the entire 100 per cent stake in the latter’s Gujarat plant.
On July 31, MSIL had announced that it would acquire 100 per cent in Suzuki Motor Gujarat Private Limited, which owns the plant, from SMC. This deal is expected to increase the share base of MSIL by about 4 per cent. Consequently, it will raise SMC’s shareholding in Maruti by around 1.8 percentage points to 58.28 per cent.
Bhargava said MSIL reached “2 million production and sales in 40 years and is now preparing to add 2 million in the next eight years”. At the same time, it is aiming to more than double its turnover under ‘Maruti 3.0’ and bring 28 different models in the market, including six electric vehicles, by FY31.
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“We were essentially a small car manufacturer and we have to now adjust to the fact that because of regulatory and other factors, small cars are coming down and the basket for SUVs is going up,” the chairman said. “We are adjusting to that, and I can assure you that in the coming years we will make every effort to regain our market share,” he said.
Maruti’s volume share in the Indian passenger vehicle market has been declining over the past few years. Its volume share dropped to 41.29 per cent in FY23, down from 47.37 per cent in FY17, according to the Siam data.
Bhargava said MSIL’s decisions had been in the best interest of its shareholders. Transparent systems, frugal management, and no-cash deals helped MSIL become profitable from the very beginning, leading to strong cash reserves, he noted.
One is often told by experts that having unused cash reserves erodes value for shareholders. “I have never really understood this logic. It may not necessarily be correct in our case,” he said.
He recounted the 2014 situation where the company had faced minority shareholder unrest when it decided that SMC would be setting up the Gujarat manufacturing facility and would supply cars to MSIL at a cost-plus basis. He said the company at that time had cash reserves of around Rs 13,000 crore. Now it has cash reserves of around Rs 46,000 crore and a price-to-earnings (P/E) ratio of 30 (as of March 2023), which Bhargava claimed was one of the best in the world among automobile majors.
The reserves would be useful to execute the Maruti 3.0 plan, which needs a lot of infrastructure and support services development. It was because of its robust cash reserves that the company could tide over the Covid-19 pandemic and the recent chip crisis, he said.
Earlier this month, Bhargava had said that “Indian companies have developed this practice, on a pretty wide scale, of siphoning off money out of the companies. Very few companies have substantial cash reserves and that is one of the reasons why they don’t invest in technology development, engineering development, and modernisation”.
Himanshu Singh, a research analyst at Prabhudas Lilladher, said the appointment of Roy was a positive development. “His vast experience and expertise in managing operations of large multinational corporations will be crucial in steering Maruti Suzuki towards a path of sustained growth and success as it seeks to strengthen its position in the evolving automotive landscape,” Singh added.
