BackMaruti Suzuki eyes ₹1.25 tn capex to boost EV, SUV play
The company said it expects EVs to make up 15-20% of its sales by 2030-31.
PremiumMaruti Suzuki India Ltd on Monday said it is looking to invest as much as ₹1.25 trillion by 2030-31 to develop 10-11 new models, including six electric vehicles (EVs), and double its annual production to 4 million units. In a presentation, the country’s largest carmaker said it plans to dial up its presence in new vehicle segments, including hybrid, flex fuel and electric, particularly in the sport utility vehicle (SUV) format.
The company said it expects EVs to make up 15-20% of its sales by 2030-31. “Another 25% could be hybrids, and the rest would use ethanol, CNG (compressed natural gas) and possibly CBG (compressed biogas)," it said.
In July, Maruti Suzuki said it would buy out its Japanese parent Suzuki Motor Corp.’s (SMC’s) stake in Suzuki Motor Gujarat (SMG), its contract manufacturer, by issuing preferential shares. On Monday, the company said this will help it conserve cash reserves.
“It took nearly 40 years for Maruti Suzuki to reach a scale of approximately 2 million units, and now it is looking to add another 2 million units in just 7-8 years. Of this volume of 4 million, over 3 million units are planned to be sold in the domestic market, including sales to other original equipment manufacturers (Toyota), and 750,000-800,000 units are expected to be exported. The domestic market is expected to grow at approximately 6% compound annual growth rate (CAGR) and is expected to be around 6 million units by 2030-31. The company is expected to grow faster than the Industry," the presentation said.
The carmakers hopes its SUV focus will help it regain its lost market share—52% at its peak in 2018-19—offsetting the decline in small car sales, which has been its core market.
“Funds would be needed for creating the sales, service and spare parts infrastructure to almost double domestic sale volumes. The infrastructure for exporting the much larger volume of cars will also have to be strengthened. The conversion of production lines to have greater flexibility will need additional capex. R&D will need additional outlays to enable most of the development work relating to internal combustion engine (ICE) cars being done by Maruti Suzuki. Capex will be needed to develop 10-11 new models with different fuel options in this period. Production of EVs and SUVs will also need larger capex", the presentation said.
It added that the company could consider investing in the production of CBG both for its own needs and also for sale as a fuel. It is already working on developing CBG as an auto fuel in India.
The company’s chairman, R.C. Bhargava, indicated at the company’s annual general meeting in August that the carmaker will need about ₹45,000 crore to create a capacity of 2 million units.
“The regular capex in the existing plants at Gurugram, Manesar and Gujarat will continue. The amount in 2022-23 was around ₹7,500 crore. Total capex till 2030-31 could be as much as ₹1.25 trillion. Additional cash flows from the new capacities being added would come, but there would be a lag between investments and income. The management believes that cash should be first available and not spent in anticipation of income. If excess cash accumulates at any time, and there are no available investment needs, it can then be used appropriately, including increasing the dividend payout band and payment of higher dividends," Maruti said.
The carmaker has a comfortable cash reserve of nearly ₹47,000 crore. According to Maruti Suzuki, issuing shares in the Suzuki Motor Gujarat deal will minimize the impact on earnings per share and profits compared to a cash transaction, as it would have resulted in a loss of interest income.
The proposal will be put to a vote before Maruti’s minority shareholders at an extraordinary general meeting in the future, the company said in a regulatory filing.
The company estimates that under the share swap model, its net profit will be consistently higher than it would have been under a cash transaction. In FY31, it expects net profit to be ₹1,400 crore higher under a share swap than a cash deal. Besides, it also expects higher earnings per share and dividend payouts with the share swap arrangement relative to a cash buyout.
Milestone Alert!Livemint tops charts as the fastest growing news website in the world 🌏 Click here to know more.
