Maruti Suzuki raises annual sales target to 2.5 million units by 20253 min read . Updated: 26 Dec 2017, 08:44 AM IST
Maruti Suzuki has asked vendors PPAP Automotive, JBM Auto, Minda Industries and Lumax Auto to ramp up investments near Suzuki's Gujarat plant to meet the sales target
New Delhi: Maruti Suzuki India Ltd, the seller of every second car in India, has raised its sales target for the second time in two years to 2.5 million units every year by 2025, according to two people with knowledge of the matter.
The company, which had in 2015 set itself a target of 2 million in sales by 2020, will achieve that target one year ahead of schedule, said one of the two people, both of whom spoke on condition of anonymity.
In meetings with tier-1 suppliers, the company’s management has asked vendors such as PPAP Automotive, JBM Auto Ltd, Minda Industries and Lumax Auto Ltd to ramp up investments near Suzuki Motor Gujarat (SMG)’s manufacturing facilities. Some of the vendors have already started to increase investments in the state to meet the capacity requirements.
SMG and Maruti have a contract manufacturing agreement, wherein the latter buys products from the former’s factory at cost price.
“Maruti Suzuki has set a target of 2.5 million vehicles by 2025 and the component suppliers have been asked to ramp up their respective capacities in and around the Gujarat plant. Though the target is pretty ambitious, Maruti as a company has always been successful in achieving sales targets," the person added.
Maruti sold 1.5 million units in 2016-17.
Significantly, for some of the tier-1 suppliers, business from Maruti Suzuki translates into almost 40% of their revenues. As a result, they don’t have a choice but to follow the company’s guidance.
“Maruti Suzuki has set a target of selling 25 lakh (2.5 million) vehicles by 2025 which is ambitious but given the product line-up and capacity it will have in Gujarat, the target is achievable. Some of the component suppliers have plants in both Hansalpur and Sanand, so they have been ramping up both the facilities," said the second of the two people cited earlier.
Maruti’s new sales target has come on the back of a rapidly changing passenger vehicle industry that is going through a disruption of sorts amid changing regulations on fronts such as emission and safety, and a global outcry to move to vehicles run on electricity in order to cut down dependence on fossil fuel and reduce pollution.
According to the second person cited above, his company is making an investment of about Rs20 crore in its existing facility in Gujarat to expand production, and the exercise is expected to be completed by 2019.
Additionally, the Delhi-based car maker plans to increase its existing capacity in Gujarat. According to R.C. Bhargava, chairman, Maruti Suzuki, the current capacity at the Gujarat facility is 250,000 cars a year, and another line with equal capacity will be added in 2019.
According to a company spokesperson, the second line at SMG’s factory will take the total production capacity of Suzuki in India to 2 million units.
“Our suppliers are also aligned to our business goals and will make investments in ramping up their capacities accordingly," the company spokesperson said in response to a Mint questionnaire.
“A third line (Line C) will be added depending upon market situation and our suppliers will also align to it," the spokesperson added.
The first of the two people cited earlier said vendors have been asked to gear up for the third line too.
Maruti has seen strong sales momentum, even as its peers have struggled. The company’s stock touched the Rs10,000 mark for the first time last week, making it the country’s sixth firm to cross Rs3 trillion in market capitalization.
According to Anil Sharma, principal analyst at forecasting firm IHS Markit, the Indian car market is poised to grow in double digits for the next two years. “But, it is confined to Maruti because theirs is a structural story," he added.