New norms have increased prices of vehicles; says RC Bhargava, Maruti Suzuki

The market has remained almost flat in the fourth quarter and new norms have increased the cost of the vehicles, said RC Bhargava, Chairman, Maruti Suzuki India Limited. In an interview with Swati Khandelwal, Singh said that the sales may bounce back in July to September (second) quarter of the financial year 2019-20. Edited Excerpts:

Q: The company has reported a drop in March quarter earnings and growth. What can be the factors behind this drop?

A: The market was absolutely flat in the quarter and there was no growth in sales and production. 

Q: Update us on the existing inventory levels and the ways that will be adopted to tackle it?

A: Inventory levels are within our norms because our production plan is based on inventory levels that exist with the dealer and with us as well as expected sales to make sure that inventory doesn’t accumulate a lot. Incidentally, expecting good sales during the festive season, the dealers, like every year, increased their inventory levels but it didn’t happen. This leads to, for a short period, accumulation of inventory with the dealers and to reduce that we reduced our production and their sales, and it helped us in bringing down the inventory levels to its normal status. 

Q: Let’s talk on the production as there was a production cut of 21 per cent in March. Do you have any plan to go for a production cut in the coming months? Also, update us on the current production levels?

A: There is nothing like production cut as each month’s production plan is devised in accordance with available inventory, sales and demand. So, the monthly plans for production, to accelerate or decelerate, are decided after looking at the market situation.  

Q: Update us on the kind of impact that the raw material prices had on the margins of the company in the last quarter and expectation going ahead from here?

A: The government has introduced new norms like safety norms have been introduced under which anti-lock braking system (ABS) and airbags have been made mandatory for all vehicles and every vehicle should meet to the side impact regulation. And, these factors are increasing the prices of the car. Apart from this, BSVI is being introduced in new models and this conversion to BSVI norms is also having an impact on the cost of the vehicle. So, BSVI norm is being introduced, almost every month, in some model and its introduction will increase the price of the vehicle/model. 

Q: Let’s talk on Royalty and Maruti has earlier said that it is shifting towards a rupee-denominated pay system by 2022. I will like to know about its impact in the last quarter amid fluctuation in rupee value?

A: Overall royalty, this year and last year, has been almost equal. It hasn’t seen any major impact.   

Q: What is your outlook for FY20 and expectations related to sales?

A: See, we can’t see any major change in the April-June quarter, but it may go up in the July-September quarter. However, there are people who feel that the market will not bounce back soon and that’s why we have designed a flexible plan and kept a range of targets to meet. Let’s wait and see what pops up.