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| India Infoline Sector Reports | Thu, 11-Dec-2003 11:57:30 IST (GMT+5:30) | |
| Automobile - Cars | ||
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Maruti Udyog Ltd. Maruti Udyog Ltd (MUL), is the largest car manufacturer in the country with a market share of over 80 per cent in the car industry. It is a joint sector corporation setup by the Government of India and Suzuki Motor Corporation, Japan. Although the company is a clear leader, it faces threats from new entrants into car industry. The company was incorporated in 1981 to take over the assets of the erstwhile Maruti Ltd. Maruti Ltd set up in June 1971 had been wound up by a High Court order in 1978. The assets of Maruti Ltd were then acquired by the Government under the Maruti Ltd (Acquisition And Transfer of Undertakings Act, 1980). In the year 1982, the government signed a joint venture agreement with Suzuki Motor Corporation of Japan. Suzuki's stake had risen from 26% to 40% in 1987. Suzuki's stake went up once again to 50.25% in 1992. Between August 1997 and June 1998, there were severe tensions between the two partners over the issue of appointment, of the managing director of the company. This was resolved in June 1998. The first product, Maruti 800 was launched in 1984. In 1985, the all-terrain vehicle Gypsy was launched and Maruti sold its 50,000th vehicle. The Maruti 1000 was launched in 1990 and the Zen in 1993. The company manufactures passenger cars at its factory in Gurgaon, Haryana. Its installed capacity of 350,000 vehicles is expected to rise to 450,000 in the year 1999. The company's models include the 800cc small car, Esteem, Zen and Gypsy. In the car segment, it had a market share of 83% in FY98, with sales of 345,303 cars. For the period April '98 to January '99, MUL car sales have dropped by 6.4% to 263,681 compared to 281,697 cars for the corresponding period for FY98. The company is a significant exporter with exports to over 50 countries. During FY98, exports also witnessed a drop of 26.87% to 24,757 cars. For the period April '98 to January '99, MUL car exports dropped by 10% to 17,155 compared to 19,054 cars for the corresponding period in FY98. In August '98, the company launched the diesel version of the Zen which is powered by a 1527 cc engine supplied by Peugeot Citreon Motors, France. The company also intends to launch a diesel version of the Gypsy and a new model in the 800 cc segment. The company is known for its strategy of value-for-money pricing which has been made possible due to the high levels of indigenisation of its vehicles. While the Maruti 800, Zen, Esteem and Omni are indigenised to the extent of over 90 per cent, the Gypsy is indigenised to the extent of 82 per cent and the export version of the Zen called Alto to the extent of 76 per cent. Maruti has a vendor network of about 375. The company has several joint ventures with some of these vendors to source its raw material requirements. On the sales and marketing side, Maruti has a network of 112 dealers and sales outlets in 86 locations across the country. It also has a 1,010 strong service work shop network covering 412 locations in the country. In August 1997, a major dispute broke out between the Government of India (GOI) and Suzuki Motors Corpn (SMC), Japan. The issue was the appointment of R.S.S.L.N.Bhaskarudu as managing director in August 1997. SMC objected to his appointment alleging that Bhaskarudu was incompetent. SMC also described the appointment as illegal, as its five directors who comprise a majority of the company's board strength of 9, had opposed the appointment. The GOI's argument was that as per the amended agreement between the two partners in 1992, each partner could nominate a managing director for five years and there was no need for any discussion on it. The issue resulted in a major dispute with SMC dragging the GOI to the International Court of Arbitration. At that time, the GOI was led by the United Front government. The industry minister at that time, Mr. Murasoli Maran even started scouting for a new partner to replace SMC. The issue was finally resolved in June 1998 when BJP led government took over at the centre. A compromise was worked out between the two partners wherein it was decided that Bhaskarudu would retire on 31st December 1999 instead of the earlier scheduled time of 2002. Jagdish Khattar, executive director was made the Joint Managing Director and was scheduled to take over as managing director from Bhaskarudu in January 2000. MUL plans to launch Baleno in the luxury car segment and Wagon R in mid-size car segment. Baleno will be powered by a 1.8 litre, 16 valve powerplant. Initially they will be produced at the new plant from CKD/ SKD kits imported from Japan. In December '98, MUL slashed the prices of its 800cc and Zen cars by about Rs24,000 and Rs51,000 respectively. This has helped MUL to restrict the slide in its market share, due to entry of new car manufacturers. For FY99, MUL's total income dropped by 4.2% to Rs81.2bn. The decrease in prices of 800cc and Zen, was reflected in a drop of 20% in net profit to Rs5.2bn compared to Rs6.5bn in FY98. As a process of its disinvestment in PSU, the GOI is seriously considering disinvesting its holding in MUL, in the domestic market. But there have been no announcements regarding this from the company.
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