Maruti raises output target on hopes of a nascent recovery

Maruti Suzuki India Ltd has raised its vehicle production target for this fiscal in the first sign that India’s largest carmaker is seeing green shoots of a recovery in the troubled auto sector.

The Suzuki Motor Corp. unit has increased the target for the year ending 31 March by 6%, or 60,000 units, to 1.65 million vehicles, said two people with direct knowledge of the matter.

The target has been increased because of expectations of stronger demand in the fiscal fourth quarter with the rollout of more cars compliant with Bharat Stage-6 (BS-6) emission norms, cheaper financing options and brisk demand for its new products, XL6 and S-Presso, said the two people cited above.

Currently, of the 15 models of Maruti Suzuki, eight are compliant with BS-6 emission norms, which come into effect from 1 April.

Maruti’s decision is significant that the automaker cut production substantially in the first seven months of this fiscal as a slowing economy crimped consumption demand in the world’s fourth-largest automobile market. Maruti raised production by 4.3% in November, after nine consecutive months of decline.

Passenger vehicle sales have been sliding since August last year in the wake of the bankruptcy of Infrastructure Leasing and Financial Services Ltd, which triggered a liquidity crunch that worsened as problems surfaced among non-banking financial companies. Sales measured as factory dispatches fell for 11 consecutive months before posting a marginal increase in October this year.

Weaker sales have forced automobile factories to temporarily shut production, while several dealerships went bust.

“Maruti has moved most of its petrol products to BS-VI and can now afford to increase production. It has managed the transition quite well, despite the hit in the first seven months of the fiscal," said one of the people cited earlier.

Uncertainty over transition to BS-6 from the current BS-4 norms was one of the factors that kept buyers away as some wanted to opt for products that are compliant with the new emission norms.

A Maruti Suzuki spokesperson confirmed the development without giving details.

“One of the main reasons that manufacturers were circumspect about the production this year was that they did not want to make too many cars that were BS-6 compliant," said Shashank Srivastava, executive director of sales and marketing at Maruti Suzuki. Production has to match retail sales and increasing production leads to higher inventories, weighing on costs, he said.

“Maruti has been working on gradually making its products BS-VI compliant, starting with the highest-selling Alto and Baleno. Now, it is easier for us to plan for an increase in production of BS-6 compliant vehicles. Even if there is some stock left, we can carry it forward to the next fiscal," said Srivastava.

New models such as the XL6 multipurpose vehicle have a waiting period, while the S-Presso small car is receiving 400-500 bookings every day, according to Srivastava.

Passenger vehicle sales in India between April and November fell 18% year-on-year to 1.88 million units. Maruti recorded the biggest decline among carmakers because of its position as the market leader. Its sales fell 20.4% during the period, while its market share dropped to 50% from 51.80% year-on-year.

Despite the renewed optimism on production, the recent recall of Ertiga and Ciaz could be a potential dampener, said the second person.