MANAGEMENT DISCUSSION AND ANALYSISINDUSTRY OVERVIEW
Year 2009-10 started against a backdrop of mixed macroeconomic signals in India. Therewas an unprecedented slowdown in the previous year, with quarterly swings. By the end of2008-09, while overall sentiment was cautious, certain sectors had started to recover. Atthe start of 2009-10, passenger vehicle industry growth projections ranged from -5% to+10%.
While most governments around the world had to take extreme steps, policymakers inIndia gave a calibrated impetus to revive consumption. Although this fiscal expansionincreased government deficit, it arrested the slowdown. The stimulus package inDecember-08 included a 4% reduction in Cenvat rate. The Government also reduced fuelprices, and took steps to improve liquidity and bring down interest rates. Together withthis, improved availability of car loans by public sector banks, resilient demand fromrural areas and government employees and manufacturers' marketing efforts helped improvesentiment and customers returned to showrooms.
During the year, the economy posted a remarkable recovery and grew by 7.4%. It was alsoa year of several model launches by the Indian car industry, which boosted consumersentiment. Passenger vehicle industry grew by 26% after flat sales the previous year. Thetwo-wheeler market benefited from demand from rural and mid-urban India and grew by 26%.The commercial vehicle industry saw more pronounced swings and grew at 38% after declining22% the previous year.
Auto Industry Growth: Indian Automobile Domestic Sales Growth Rate (%)
| Category | 2004-05 | 2005-06 | 2006-07 | 2007-08 | 2008-09 | 2009-10 |
| Total Passenger Vehicles | 18% | 8% | 21% | 12% | 0% | 26% |
| - Passenger Cars | 18% | 8% | 22% | 12% | 1% | 25% |
| - A1 | -31% | -23% | -11% | -12% | -29% | 28% |
| - A2 | 34% | 15% | 31% | 14% | 3% | 27% |
| - A3 | 26% | 7% | 6% | 15% | 7% | 14% |
| - A4, A5 & A6 | 60% | 7% | 40% | 4% | -13% | 35% |
| - Utility Vehicles | 20% | 10% | 13% | 11% | -8% | 21% |
| - MPVs | 9% | -2% | 25% | 21% | 6% | 41% |
| Total Two Wheelers | 16% | 14% | 11% | -8% | 3% | 26% |
| - Scooters | 4% | -2% | 4% | 12% | 9% | 27% |
| - Motorcycles | 19% | 17% | 13% | -12% | 1% | 26% |
| - Mopeds | 5% | 3% | 7% | 16% | 4% | 31% |
| Electric Two Wheelers | | | | -43% | 49% | -89% |
| Total Three Wheelers | 8% | 17% | 12% | -10% | -4% | 26% |
| Total CVs | 22% | 10% | 33% | 5% | -22% | 38% |
| M&HCVs | 23% | 5% | 33% | 0% | -33% | 34% |
| Total LCVs | 21% | 19% | 34% | 12% | -7% | 43% |
| Grand Total | 16% | 13% | 13.7% | -4.6% | 1% | 26% |
Most European countries announced generous incentives to the public to replace theirold cars with new ones. Small, fuel efficient cars exported from India benefited from thisopportunity.
COMPANY OVERVIEW
"given the dynamic market situation… we have to accept uncertainty andconsciously plan for it. Planning for uncertainty for us would mean building flexibilityand agility throughout our value chain. It means speed. Lower response times. Fasterdecision making. A positive approach to change." -MD & CEO, Maruti Suzuki in theAnnual Report 2008-09
Flexibility and Agility were identified as the mantras to win in a volatileenvironment. This approach was communicated to all employees, vendors and dealers. A closewatch on demand in domestic and export markets, strong inventory control, shorter leadtimes, a stretch on capacities, and better product mix flexibility helped the Companyachieve overall growth of 28.5% over the previous year. The Company sold 1,018,365vehicles during the year. This comprised of 870,790 cars in the domestic market (growth of21%) and 147,575 in the export market (growth of 111%).
For the first time, Maruti Suzuki was able to make and sell more than a millionvehicles in a year.
The Company launched a new model, refreshed four existing models and introduced itsnext generation K-series engines in four models.
The Company registered Net Sales of Rs. 289.5 billion, growing at 42.2% over theprevious year. Net Profit after Tax stood at Rs. 24.97 billion, a growth of 105% overFY'09. Since the previous year was exceptional on account of the global economic crisis,it may be relevant to look at the financial performance over two years. In the two yearperiod ending 31 March 2010, the Net Sales grew 62%, implying a CAGR of 27% and the NetProfit grew 44% implying a CAGR of 20%. Capex for the year stood at Rs. 14.7 billion.
The Company started work on building an additional capacity of 250,000 cars per year,at Manesar. As part of the efforts to build an R&D capability, 700 acres of land wereprocured for a world class proving ground at Rohtak. The number of design engineersincreased to 958, as planned.
Sustainability
The Company's relationship with its stakeholders is one of mutual well-being and trust.As part of its National Road Safety Mission, the Company trained 1,37,000 people in safedriving at Institutes of Driving Training and Research and Maruti Driving Schools. Ofthese, training of 28,000 people was sponsored by the Company.
Top management reviews were instituted for all plant emissions and natural resourceconsumption. Significant time, effort and management thought were invested in trainingdealers and tier-1 and tier-2 vendors in business excellence, corporate governance,professionalization, financial sustainability and functional competencies. While this isinherently sustainable and has been the Company's philosophy since inception, the Companyemployed global best practices to proactively map the impact of its business on itsstakeholders from economic, environment and social perspectives and published asustainability report with the theme “Give, Get, Grow”. This report is abroadbased internal employee effort and conforms to A+ level of international GRIguidelines. This will continue to be a significant tool for self-improvement.
BUSINESS PERFORMANCE
Domestic Market
Car demand growth started from the rural and smaller towns in the first quarter andspread across India, including the top cities, by the last quarter. The Company'sextensive network, and innovative marketing initiatives, enabled it to capture thisdemand.
The sales network added 121 outlets to reach 802. The number of cities coveredincreased from 454 to 555. Similarly 127 more dealer service workshops were activated. Thetotal cities covered went up from 1314 to 1335. The Company tied up with five more publicsector banks to promote car loans.
There were several new model launches in the Indian market during the year, includingin the high volume small and compact segments. The Company has always welcomed competitionas it helps the Company grow and aids the process of improvement.
The approach of the Company is to try and understand customer expectations and striveto deliver global or customized products that meet them as closely as possible.
Towards this aspiration, the Company launched its fifth world strategic model - theRitz. It has global styling and a powerful, best-in-class, fuel efficient K-series engine.The Ritz clocked 50,000 unit sales in 9 months, the fastest for any new model ever. Theexisting model in the same segment, Swift, continued to be strong. Its sales grew fromabout eight thousand cars to twelve thousand a month.
The Company launched the Eeco, a spacious multi-purpose van and the new WagonR. Itrefurbished the SX4 engine to incorporate VVT (variable valve timing) technology andintroduced K-series engines in Swift, DZire, Estilo and the new WagonR.
The Company's share in the domestic passenger cars and vans market stood at 51.7%.Since a number of models were on waitlist, the Company made efforts to maximise outputthrough better productivity, innovation and flexibility.
The Company strengthened its leadership in the sedan or A3 segment, increasing marketshare from 31.4% to 36.0%. The Company's market share in this segment has more thandoubled in three years. The Company's average realization per car has increased by about32% in this period.
The Company showcased two new models at Auto Expo 2010, which fit with the changinglifestyles of the Indian consumer. One was Concept rIII, a three-row familyvehicle, designed by the Company's R&D engineers and body stylists. The other was theglobal Suzuki car, the Kizashi, a major attraction at Suzuki displays at motor shows inTokyo and Geneva.
Servicing of the car in India and its ease, availability and friendliness continues tobe an important consideration in the purchase decision. The Company's network servicedmore than 12.9 million cars in the year. Initiatives like a spruced-up customer lounge atworkshops, use of high productivity equipment and an IT enabled vehicle tracking system inworkshops, were taken. The Company seeks to have a service facility every 25 km onimportant stretches of major highways.
The Company was rated first in customer satisfaction (post sale service) for the tenthyear in a row in the annual survey by JD Power Asia Pacific. The Company was also awardedthe JD Power Award for the highest Sales Satisfaction in India. Studies show a strongcorrelation between customer satisfaction and customer repurchase and advocacy intent.This is also supported by the “Escaped Shoppers Study” of JD Power. It mentionsthat the percentage of predetermined or loyal customers in the car industry is the highestfor Maruti Suzuki, at 78%.
With shortening car ownership cycles, the residual value of the car is becoming animportant determinant of total cost of ownership. The Company's pre-owned car businesssold 1,63,240 cars in the year, a growth of 33% over the previous year.
The Company's insurance initiative facilitates the issue of insurance policies andenables a single point cashless claim. In its ninth year of operations, the insurancebusiness reached a cumulative sale of 10 million policies, out of which 2.5 million werein 2009-10.
Exports
The Company clocked export sales of 147,575 units, its highest ever. This is a 111%growth over the previous year's total of 70,023 units. On a cumulative basis, exportscrossed 700,000 units. Europe has accounted for over 75% of the sales.
During the year, exports were helped by the launch of a world strategic model ofSuzuki, known as the A-star in India, the new Alto in European and some other markets, theCelerio in various non-European markets and the Pixo in Europe sold under the Nissanbrand. The new Alto was received well by customers on account of its styling, safetyfeatures and environment friendly engine. In Chile, the launch of Suzuki Celerio wasawarded the best launch of the year. In Australia, Suzuki Alto won the nationwide event'Green Challenge', recording the lowest CO emission and in Philippines, the Suzuki Celeriowas voted “Car of the Year” and rated the most fuel efficient car in itscategory.
The Company was aware that sales in Europe are being helped by scrappage incentiveschemes by various governments, and demand may slow down once the schemes are withdrawn.While for the short term, there was focus on a lean and agile supply chain, for the mediumterm, the Company developed several non Europe markets. The Company now exports to morethan a hundred countries across the world.
Spares & Accessories
The spares and accessories business grew at the pace of vehicles sales, achieving a 29%year-on-year growth.
The focus was on ensuring timely availability of parts across the country, atcompetitive prices. The Company also expanded the product range of accessories, includinghigh end categories.
A new state of the art warehouse has been constructed at Manesar. Initiatives to reducespare parts inventory at dealerships released critical working capital for car sales.
ENGINEERING, RESEARCH & DEVELOPMENT
Suzuki technology has through the years, given products which are just right for India.The M800 car in the early eighties, Omni as the multipurpose van, Swift as the premiumcompact car, Dzire and SX4 for the upwardly mobile Indian are all examples of efforts tomeet the consumer lifestyle as closely as possible. The Company believes that the Indianconsumer is progressing at an impressive pace and deserves to get similar enhancement intechnology, features, styling, performance and cost efficiency in the cars she buys.
While the Company gets excellent support from its parent in launching a number of newmodels, it needs to supplement it with its own R&D capability. The Company has movedin its R&D maturity path from parts localization, to model facelifts, to collaborativedesign of global models. The next step is full body capability. Towards building thiscapability, the Company had embarked a few years ago on an integrated effort to induct andtrain design engineers, put up world class proving grounds, crash test facility, windtunnel laboratory and other testing infrastructure, put up shared IT infrastructure forcomputer aided engineering and try to build live project experience with design engineers.The Company is on course on these projects; 700 acres of land has been procured at Rohtakfor the test track and the strength of engineers is touching 1000.
The Company's designers showcased their imagination and styling prowess at Auto Expo2010 through the Concept rIII. It is a three row family vehicle seeking tocompliment the lifestyle of consumers and giving them an avenue to enjoy with friends andfamily. They also showcased an SX4 hybrid concept car, on which lines cars will be used inthe Commonwealth Games 2010.
During the course of the year, the Company launched several new and refreshed modelsand introduced the K-series engines with a quantum jump in technology.
It strengthened the premium compact segment with its new offering, the Ritz. Sold inEurope with the brand name “Splash”, the Ritz comes with contemporary Europeanstyling, advanced features like dual airbags, electronic brake force distribution,steering mounted audio controls, keyless entry, immobilizer. It is fitted with the nextgeneration light weight, low friction, and low noise K12 engine.
The K-series engines employ a plethora of technologies such as high compression ratio,high atomisation injectors, offset crankshaft with light weight piston and low tensionrings, nutless conrod, rockerless DOHC, plastic intake manifold, distributorless ignitionand the like. The result of these technologies is an unmatched combination of high powerand high fuel efficiency at the same time. The K-series engines were introduced in the newEstilo, the new WagonR, the Swift and the Dzire.
The SX4 was refreshed with a facelift and introduction ofVVT (variable valve timing)technology in the engine. The Company also launched a refreshed model, the Eeco, with a1.2 Litre engine which offers the customer space and comfort at a very affordable price.The Company has upgraded all its relevant models to Bharat Stage 4 emission norms.
The product design excellence of the Company was recognized by best in category awardsin four passenger car segments: WagonR in entry compact, Ritz in premium compact, SwiftDzire in entry midsize and SX4 in midsize, in the survey on Automotive Performance,Execution and Layout (APEAL) conducted by JD PowerAsia Pacific for 2009.
The Company has developed in-house systems for gas injected CNG powered cars, whichmeet Bharat Stage 4 emission norms and deliver superior fuel efficiency and power comparedto conventional systems. CNG as an auto fuel has low carbon dioxide emissions, is costeffective for the consumer and has the potential of reducing the crude oil import of thecountry.
OPERATIONS
The Company produced 33% more vehicles during the year compared to the previous year,delivering much above installed capacity. The scale of operations, the speed of demandrecovery and the dynamism in product mix put a huge requirement on the ability of theCompany to stretch production, be more flexible and more adaptive. The Company wasprepared and in the beginning of the year itself, the mantras of flexibility and agilitywere adopted by the Company and business associates.
The Company has an integrated approach to deliver on its production objectives in theform of a Production Management System or PMS. The core of PMS lies in involvement of alllevels of employees and generation of ideas through a series of brainstorming sessions.These ideas are then discussed within small groups and identified for implementation. Thisapproach unlocks organizational potential through clarity of goals and ownership. Theobjective of PMS is to achieve manufacturing excellence in four areas: Safety, Quality,Productivity and Cost. The Company benefits from a powerful combination of Japanese bestpractices and Indian innovation and information technology skills.
Skill and capability development at all levels is the next important enabler.Associates on the shop floor had about 43,000 man-hours of training in the year at theCompany's technical training center.
Safety receives top management focus and a culture of zero tolerance is beingpropagated within the Company. The Company leveraged training in root cause analysis toolsand with wide participation of associates in Quality Circle activities was able to improvepre-delivery inspection results by 27%. Output and quality at the new K-series enginecasting shop have matched Suzuki levels in less than two years of operation.
The production teams worked on several cost reduction projects and achieved substantialsavings through machining tool cost reduction and automation of material handling systems.Similar improvement projects have helped the Company's machine shops to reach an overallequipment effectiveness of 91%, at par with global levels.
Modernisation of Gurgaon Plant
In line with introduction of new models and discontinuation of old ones, some of theolder production lines were reconfigured, merged and replaced by highly flexible andproductive lines with a net increase in throughput.
Swift Production at Gurgaon
The Company has three plants in Gurgaon and one in Manesar. The Manesar plant producesmodels like Swift, Dzire, SX4 and A-star. Following strong demand in the Manesar models,the Company created facilities to co-produce the Swift in the Gurgaon plant. The Companywas able to deliver about 17,000 more Swift cars to waiting customers in the year throughthis initiative.
KB series engine plant expansion
The Company raised the capacity of its next generation K-series engine plant to morethan 500,000 units per annum. It is a state of the art plant with features like in-processquality check machines, automatic leak testing, automatic measuring machines, cold testbench and RFID & Ethernet traceability systems.
Manesar capacity expansion
The Company started work on an additional plant of 250,000 cars per annum capacity atManesar. The Company is making all efforts to maximize capability through de-bottleneckingand productivity improvement to meet market demand before the new facility comes up.
Tool & die design capability
The Company has started the design & development of dies for critical sheet metalparts and engine components. During the year, inhouse die development for body parts ofmodels like the Ritz, Eeco and Estilo helped the company save cost over imported dies. Inaddition, significant cost saving was achieved through better tool design to facilitateyield improvement and use of alternate raw material. With faster product refreshmentcycles in the future, this capability will help the Company deliver new models in lessertime and cost.
Information Technology
Information technology serves as a strategic enabler. It helps the management toeffectively monitor performance of vendors and dealers using Vendor Management System andDealer Balance Scorecard. This throws up areas of improvement, operationally andfinancially.
IT helps in providing a connected environment for seamless collaboration in the entirevalue chain.At one end, IT connects suppliers on a real time basis through an extranet toensure on time delivery and supplier enhancement. On the other, it supports all dealers ona real time basis for sales and service transactions, and critical management informationsystem on customer behaviour and operational excellence.
The Company has initiated a project on analytics and business intelligence using acustomer database of about 6 million records.
The Company has taken adequate precaution for business continuity in any unforeseenevent affecting the information system.
COMPONENTS AND RAW MATERIAL PROCUREMENT
The year 2009-10 was challenging for the auto component industry. After the slowdown of2008-09, it had to quickly adjust itself to a spurt in demand. Its manufacturingcapacities, human resources and finances came under stretch. While the component vendorswere able to support the Company, there were select cases of supply disruptions owing toissues relating to industrial relations or manufacturing operation.
The Company is helping component suppliers scale up, given their critical role in thegrowth of the auto industry. The Company has, since inception, facilitated more than ahundred technology collaborations for vendors and shared its quality and manufacturingbest practices with them. In addition, the company is now engaging with vendors onprofessional management, HR systems and best practices, financial sustainability and aculture that fosters good quality at every step. This engagement is a very structuredexercise involving best in class consultants, vendor CEOs with a detailed mapping of thecurrent situation and recommended improvements.
The Company continued to deploy powerful techniques and methodologies of costreduction. Special emphasis was laid on localization of parts imported by vendors as,apart from cost reduction, it provides immunity from foreign exchange fluctuations.
Steel prices kept low for most part of the year, but climbed steeply towards the end.On select commodities like copper and precious metals, the Company took hedging calls andthe experience has been positive. The Japanese yen broadly continued to be strong, andposes a structural cost disadvantage in imports.
FINANCE
The fast-paced recovery of the economy in 2009-10 was largely supported by a prudentpolicy response of the Government of India in the wake of the financial crisis. The globaleconomy, led by the Asian economies especially China and India, has shown signs ofrecovery in 2009-10.
Industrial growth gathered pace in India in the second half of the financial year andhas averaged 9.3% for the whole year. Combined with good growth in services (8.5%) andflat performance in agriculture despite a dull monsoon, the economy grew by 7.4% in2009-10. With the softening of commodity prices, good growth in volumes resulting ineconomies of scale and favourable exchange rate movement in Euro resulting in betterexport realizations, the Company has shown decent improvement in sales as well as profits.
| Highlights | |
| Domestic Volumes | 21% |
| Export Volumes | 111% |
| Net Sales | 42.2% |
| PBT | 114% |
| PAT | 105% |
The Company registered its highest ever sales of 1,018,365 vehicles in the domestic andexport markets during 2009-10.
This resulted in Net Sales of Rs. 289,585 million (excluding excise), a growth of 42.2per cent over 2008-09. The Company's sales growth, coupled with continuous improvements inoperational efficiencies has contributed to its financial performance for 2009-10.
Earnings before depreciation, interest, tax and amortization (EBDITA) stood at Rs.44,510 million against Rs. 24,333 million in the previous year recording a jump of 82.9%.
Net profit increased by 105 per cent, to Rs. 24,976 million from Rs. 12,187 million.
Earnings per share (EPS) increased from Rs. 42.18 in 2008-09 to Rs. 86.45 in 2009-10.
Table 1: Abridged profit and loss account for 2009-10 (Rs. million)
| Parameters | 2009-10 | 2008-09 | Change |
| 1 Volumes (Nos.) | | | |
| Domestic | 870,790 | 722,144 | |
| Exports | 147,575 | 70,023 | |
| Total | 1,018,365 | 792,167 | 28.6% |
| 2 Gross Sales | 318,073 | 230,852 | |
| Vehicles | 298,534 | 216,590 | |
| Spares, dies, moulds | 19,539 | 14,262 | |
| 3 Excise duty | 28,488 | 27,269 | |
| 4 Net sales (2-3) | 289,585 | 203,583 | |
| 5 Income from services | 1,404 | 954 | |
| 6 Total operating income | 290,989 | 204,537 | |
| 7 Other income | 10,209 | 10,001 | |
| 8 Total income | 301,198 | 214,538 | 40.4% |
| 9 Consumption of raw materials & components, stores & traded goods | 224,134 | 162,427 | |
| 10 Employee costs | 5,456 | 4,711 | |
| 11 Manufacturing, administrative and other costs | 17,938 | 15,685 | |
| 12 Selling and distribution expenses | 9,160 | 7,382 | |
| 13 Financial expenses | 335 | 510 | |
| 14 Depreciation | 8,250 | 7,065 | |
| 15 Total expenditure | 265,273 | 197,780 | 34.1% |
| 16 PBT (8-15) | 35,925 | 16,758 | |
| 17 Current tax | 11,230 | 4,592 | |
| 18 Deferred tax | (281) | (118) | |
| 19 Fringe benefit tax | 0 | 97 | |
| 20 PAT (16-17-18-19) | 24,976 | 12,187 | 105% |
Table 2: Financial Performance Ratios (As a Percentage of Net Sales)
| Parameters | 2009-10 | 2008-09 | Change |
| Material cost | 77.4% | 79.8% | -2.4% |
| Employee cost | 1.9% | 2.3% | -0.4% |
| Manufacturing & | 6.2% | 7.7% | -1.5% |
| admin expenses | | | |
| Selling and distribution | 3.2% | 3.6% | -0.4% |
| expenses | | | |
| Depreciation | 2.8% | 3.5% | -0.7% |
| PBT | 12.4% | 8.2% | 4.2% |
Transition to International Financial Reporting Standards (IFRS)
The Institute of Chartered Accountants of India has mandated that Listed IndianCompanies should converge to IFRS by April 1, 2011. The Company has taken steps towardsconvergence to IFRS. At the preliminary stages, the impact of convergence on operationsand financial performance has been assessed. The Company is confident that it will beready for convergence to IFRS as per the stipulated time lines.
Working Capital Management
Around 75% of the Company's components by value are outsourced, and manufacturing isundertaken based on Just-In-Time (JIT) inventory principles. Working capital management,therefore, plays a key role in the Company's operations. The inventory turnover ratio ofthe Company has increased from 16.7 in 2008-09 to 21.2 in 2009-10. The average receivablesholding period has decreased from 12.6 days in 2008-09 to 10 days in 2009-10.
Treasury Operations
The Company has efficiently managed its surplus funds through careful treasuryoperations. The guiding principle of the Company's treasury investments is safety andprudence. In view of this, the Company invested its surplus funds in debt schemes ofmutual funds and short-term bank fixed deposits. This has enabled the Company to earnreasonable and stable returns in a dynamic interest rate scenario.
Table 3 lists the different portfolios while Table 4 lists the return on these surplusfunds.
Table 3: Investment of surplus funds (Rs. million)
| 31-03-10 | % of total | 31-03-09 | % of total |
| Bank fixed deposits | 0 | 0% | 17,000 | 38% |
| Debt mutual fund | 67,930 | 100% | 27,907 | 62% |
| Total | 67,930 | 100% | 44,907 | 100% |
Table 4: Income from investment of surplus funds
(Rs. million)
| 2009-10 | 2008-09 |
| Interest on fixed deposits | 1,156 | 660 |
| Dividend from debt mutual funds | 1,531 | 1,399 |
| Profit from sale of investments | 1,257 | 2,137 |
| Total | 3,944 | 4,196 |
Foreign exchange risk management
The Company is exposed to the risks associated with fluctuations in foreign exchangerates mainly on import of components, raw materials, royalty payments and export ofvehicles. The Company has a well structured exchange risk management policy. The Companymanages its exchange risk by using appropriate hedge instruments depending on the marketconditions and the view on the currency. With a quantum increase in exports in the year,the Company became marginally surplus on foreign exchange, however with a cross-currencyexposure. Most of the exports being to Europe were denominated in Euro and most of theimports being from Japan were denominated in Japanese yen. With a view to protect itsbudgeted assumptions, the Company took calibrated hedges on the ratio of euro to yen andthe experience has broadly been positive.
Internal controls and adequacy
The Company has a proper and adequate system of internal control to ensure that allassets are safeguarded and protected against loss from unauthorized use or disposition,and that all transactions are authorized, recorded and reported correctly. The internalcontrol system is designed to ensure that financial and other records are reliable forpreparing financial information and other data, and for maintaining accountability ofassets. The internal control system is supplemented by an extensive program of internalaudits, reviews by management, and documented policies, guidelines and procedures.
HUMAN RESOURCES
The Company has, over a period of time, inculcated an environment of exceptionalemployee engagement, ownership, motivation and pride. The people in the Company take thegrowth of the Company as a means of their own advancement and believe in team spirit andcollective progress. This environment is a result of principles of equality, objectivityand openness, examples set by top leadership, a fair, transparent and interactiveperformance assessment and recognition system and a culture of appreciation. The Companyencourages people to look out for facts and do root cause analysis with depth and rigour.The Company has since inception followed practices like an open office, a common canteenfor all levels, common uniform all of which encourage openness and honesty. Similarly theCompany insists on 3G a Japanese principle meaning go to the spot, see the problem foryourself, take countermeasure then and there. This is actually a measure to encouragepeople to stay in touch with reality. Internal communication is driven both culturally andthrough organized and structured tools to facilitate flow of this wisdom. The Companybelieves that this is the foundation of superior business performance and is strong enoughto create unprecedented results in market share, customer satisfaction and financials.
The Company is adopting initiatives like 360 degree feedback for middle management, teagroup meetings with MD and top management and Stay-Interview to take this openness to astill higher level. This translates to better speed, responsiveness, commitment and peopleexcellence.
The Company keeps realigning the organization structure with environment and businessneeds. The HR organization in the Company split itself to have dedicated HR departmentsfor functions like R&D, Marketing and Production. These departments are located in theoffices of their respective functions and have dual reporting to the HR head and to thefunctional heads. The result is each function gets customized HR support in terms ofpolicy and training interventions. A company wide succession planning exercise wasundertaken for key roles to ensure the leadership pipeline stays full and businesscontinuity is assured.
Building engineering capability has been identified as a key strategic imperative.Substantial steps were taken to create a large talent pool of young engineers with aclearly defined skill building process within Maruti and Suzuki, Japan. The company alsowent to the USA, Europe and Japan for global hiring of engineering talent for impartingtheir knowledge to the younger engineers and for specific competencies.
In depth thought was given to training needs at all levels and functions. For instance,to help sales staff understand customer satisfaction better, they were trained in 5-Whyanalysis, a tool normally associated with engineering and quality function. Union memberswere sensitized to macroeconomic and business realities for a better appreciation ofmanagement thought. The industrial relations were cordial and a long term wage settlementwas signed in April '09 with the help of a proactive, fair, firm and transparent approach.
The HR division partnered with the Supply Chain division to engage the company'svendors to facilitate HR functional maturity in a very structured project. The Companybelieves, as in its own case, the scalability and growth of component manufacturers willhappen only if they place people first.
RISK FACTORS
The Company operates in an environment which is affected by various factors some ofwhich are controllable while some are outside the control of the company. The activity ofrisk management in the company is reviewed by the Audit Committee through a management subcommittee, namely the Executive Risk Management Committee (ERMC). The ERMC consists ofManaging Director & CEO and all executive officers of the Company. It reviews the riskmanagement activities on a regular basis in addition to scanning for any new risks thatmay arise due to changes in the business environment. While the possibility of a negativeimpact due to one or more such risks cannot be totally precluded the Company proactivelytakes reasonable steps and makes efforts to mitigate significant risks that may affect it.Some of the risks that are potentially significant in nature and need careful monitoringare listed hereunder:
• ?Macroeconomic Factors
• ?Inappropriate product portfolio
• ?Competition product launches
• ?Talent acquisition & retention
• ?Continuance and growth of channel partners
• ?High dependence on suppliers
• ?Geographic concentration
• ?Changes in government policy and legislation
OUTLOOK
The passenger vehicle market size in India is now comparable to some of the developedeconomies of the world and ranks 7th globally. A simple extrapolation of the past growthrates suggests that India will improve its ranking from this level. If there is a steepernon-linear growth owing to a household income tipping point, the ranking will improvemore. The presence of a number of global players, the introduction of technology,features, styling and regulation indicate that the market is gradually attaining maturity.While all indicators suggest a good growth path for the market, a number of entrants areeyeing the same market.
The Company has in the past built a position for itself in terms of a sizeableportfolio of relevant products, a wide network with good systems and processes, strongcustomer equity, R&D capability, cost leadership, and a profitable business model withhealthy practices for its vendors, dealers and itself. There is a well-defined roadmap forbuilding on strengths like products, total cost of ownership, sales and service networkand systems and processes for customer delight. They all augur well for the future, butthe risks to organizations at such levels are more internal than external. The Company hasto watch out for signs of complacence, self satisfaction or sluggishness. The leader doesnot have the luxury of a visible and defined benchmark or competitor, as it would beavailable to the other players. The only benchmark has to be a sharper understanding andanticipation of the stated and unstated need of the customer. The Company, therefore hasto keep attacking itself, keep challenging its own levels of past achievement, keepsetting high benchmarks for improvement and continue dedicating itself to understandingand serving its customers.
Disclaimer
Statements in this management discussion and analysis describing the Company'sobjectives, projections, estimates and expectations are categorized as 'forward lookingstatements' within the meaning of applicable laws and regulations.
Actual results may differ substantially or materially from those expressed orimplied.
Important developments that could affect the Company's operations include a downwardtrend in the domestic auto- industry, competition, rise in input costs, exchange ratefluctuations, and significant changes in the political and economic environment in India,environmental standards, tax laws, litigation and labour relations.