Maruti Suzuki India Ltd, which makes half the cars sold in the country, announced an investment of 200 billion yen (Rs7,000 crore) to strengthen its marketing operations and establish a research and development (R&D) centre in a bid to defend its market share, as rivals car makers such as Nissan Motor Co. Ltd chart their expansion into India.
The company also announced that managing director Jagdish Khattar would retire on 18 December when he turns 65, in keeping with the company’s rules. Khattar, who has spent 14 years in the firm, will be replaced by Shinzo Nakanishi, who is currently chairman of Maruti Suzuki and senior managing executive officer in Suzuki Motor Corp.
Maruti’s fresh investment comes on top of investments of Rs10,000 crore that the company has announced since 2004 to improve efficiencies and expand manufacturing capacities at its facilities at Manesar and Gurgaon in Haryana, making Suzuki one of the single biggest investors in car-making in India.
“Maruti can’t afford to work at the pace it’s been working so far,” said Osamu Suzuki, chairman of Suzuki Motor Corp., which owns the company. “We have decided that there should be stronger links between product planning of Suzuki Motor Corp and Maruti.”
India’s largest car maker also said its second quarter net profit increased 27% as it sold more vehicles; this is the company’s 17th straight quarterly gain.
Maruti will set up more warehouses for stocking spares and finished vehicles, and also build a new R&D centre in Harayana, Suzuki said. This R&D centre will be Suzuki’s largest after Japan and have a test track and crash testing facilities, said Nakanishi. He didn’t specify what kind of research work the centre would do or how many people it would employ.
The company, which is targeting to produce one million units a year by 2010-11, wants to strengthen its marketing operations as a response to competition. Rivals such as Volkswagen AG and Honda Motor Co. are investing Rs30,000 crore to build new factories and develop new cars to increase their share in Asia’s third largest car market. Only eight of every 1,000 people own a car in India and first- time drivers prefer cheap fuel-efficient cars—this has enabled Maruti to build a dominant share with five small car models.
The retirement of Khattar, who joined the firm in a marketing role, comes at a time when the Indian market is attracting the attention of multinational car makers from Europe to Japan. The new entrants will put pressure on existing car makers to improve their offerings and customer service.
While Maruti has kept pace with a changing market— reinventing itself from a company with barely two competitors to one with about 14—its oldest competitor Hindustan Motor Co., once the maker of India’s most popular car Ambassador, now sells the least number of cars after it failed to keep pace with customers’ needs.
“It’s always tough for an incumbent (market leader) to grow market share,” said Rajat Dhawan, who tracks the automotive sector for consulting firm McKinsey & Co. “Hats off to the collective leadership. They have grown shares and even created new categories.”
Under Khattar, the company retained its dominant position in the marketplace. It created a new class of best-selling models with its sub-compact car Alto, though the firm had made its name selling India’s smallest car, Maruti 800, for more than a decade.
This was also a period that saw the gradual and progressive reduction of the Indian government’s ownership in the company, making it a firm majority owned by the Japanese parent.
While Nakanishi succeeds Khattar, the company’s former managing director and board member R.C. Bhargava returns as chairman. Suzuki is also bringing in a top Japanese executive T. Hasuike to take charge of the R&D project.
In the six months ended September, Maruti, for the first time, sold more cars in India than it did in Japan.
The company posted a 27% rise in net profit to Rs467 crore for the three months ended September, compared with Rs367 crore in the same period last year. A Mint poll of five analysts before the results had predicted an average Rs467 crore net profit for the car maker. The company’s revenues rose 32% to Rs4,530 crore as it sold more of its premium cars such as SX4 sedans and Swift compact cars.
Maruti’s shares rose 0.6% to Rs1,188.45 on the Bombay Stock Exchange on Monday.