Automaker expects recovery in sales of compact cars to sustain this fiscal
Maruti plans to produce a little more than 400,000 cars in Q3, increasing to 510,000 cars in Q4
NEW DELHI :
Maruti Suzuki India Ltd plans to significantly boost production in the fiscal second half as it expects a recovery in the sales of its small and compact vehicles to sustain through this year. India’s largest carmaker plans to produce a little more than 400,000 cars in the December quarter, increasing to 510,000 vehicles in the March quarter, said two people directly aware of the company’s plans.
The automaker’s plans are however contingent upon a recovery in overall economic activity and the trajectory of coronavirus cases in the country.
The March quarter production forecast, if met, will be one of the highest achieved by the company in recent years. This would allow Maruti to substantially offset losses incurred in the June quarter this year due to the lockdown, as its total production for FY21 would likely reach or surpass 1.4 million vehicles, the people cited above said, requesting anonymity.
Ever since the lockdown curbs were lifted in the first week of May, Maruti has been seeing a robust pick-up in sales, especially of compact cars. The company plans to produce around 145,000 vehicles in September, and 180,000 vehicles in October, expecting decent pick-up in sales during the Diwali festival, the people cited above said.
According to the first person mentioned above, Maruti has been quite bullish about sales prospects during the upcoming festive season and beyond and might increase supply of products like Baleno and Swift along with entry-level cars.
“The fact that the management has decided on this kind of production means demand is there in the market. Also, if demand is stable, a run rate of 160,000 cars per month is not tough for them," the person said.
In response to queries emailed on Sunday, a Maruti spokesperson said, “We cannot give any guidance on the company’s production plans."
In FY18, Maruti’s total vehicle sales, including exports, grew 13.4% to a record 1.77 million vehicles. If the company manages to stick to its plan and touch the 500,000 production mark in March quarter, then it will exceed the fourth-quarter production of 493,115 and 468,224 vehicles in FY18 and FY19, respectively.
In the December quarter, Maruti’s target of 400,000 vehicle output is higher than the 394,389 units manufactured during the same period in FY19 and marginally less than the 418,933 units in FY18.
Maruti posted a 1.8% year-on-year rise in domestic sales at 100,000 vehicles in July. Sales marked a sharp rebound from June when the company sold 51,274 units and just 13,865 units in May.
Maruti’s lofty production forecast has meant that most of its suppliers are rushing to meet the deadline set by the automaker as availability of skilled contract workers has become a challenge for suppliers following the recent large-scale migration of people to villages, said the second person mentioned above.
“Maruti might make money from selling vehicles but for suppliers, the cost of manufacturing has gone up quite a bit due to involvement of more contractual labour. They are preparing their vendors according to their plans, otherwise most of them will not be able to meet the target," the person said.
According to Puneet Gupta, associate director, IHS Markit, automakers have been able to reorient themselves, rebuild their strategy and quickly move on to digital platforms to generate demand.
“This transformation coupled with attractive interest rates, pent-up demand and festival season ahead are expected to drive sales at least this calendar year. However, we will like to caution, as due to the pandemic, the Indian economy has been derailed, so the effects of this will be visible in 2021, resulting in contraction of demand," Gupta said.
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