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BUSINESS: MARUTI UDYOG
Comeback Drive
Bold launches and new businesses help India's largest
car maker regain some of its lost market
By Malini Goyal
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KHATTAR'S GAME PLAN
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# Launch at
least one new car model every year.
# Enter the auto insurance, and used cars
businesses; expand auto finance.
# Get more out of ancillary and spare
parts businesses.
# Enhance productivity.
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The emperor has struck back. And his empire is
growing. After two years in reverse gear, when competitors dented the
market share of Maruti Udyog Ltd (MUL), the company has moved into
top gear. From a low of 42 per cent in June 2000, the MUL market share
swelled to 60 per cent in June 2001. Though the pre-1998 highs of close
to 80 per cent may not be possible again, MUL with its aggressive plans
and massive investments is at centrestage again.
MUL Managing Director Jagdish Khattar attributes
the rise in marketshare to the flurry of new launches between November
1999 and September 2000 that added five models to the car maker's stable.
After a long lull that followed the tussle between the Indian Government
and Suzuki Motors, MUL launched Wagon R, Baleno, Altura Station Wagon,
Alto 800 cc and Alto 1,061 cc. It also revamped its best seller Maruti-800
in January 2000. The multiple models did create confusion in the consumers'
minds, but they managed to bring in the numbers that MUL badly needed.
And that too in a market that was shrinking. "Our Rs 2,000-crore
investments have started yielding results," says Khattar. MUL's quarter-on-quarter
(January-March) sales went up by 18.7 per cent in 2001 to 83,495 units
even though overall the industry shrunk by 1.4 per cent during the period.
In the Rs 3-4 lakh segment (comprising Matiz, Zen, Santro and Indica),
its share went up from 31 per cent to 43.6 per cent during the period.
Says an auto analyst with a global consultancy firm: "With so many
models, MUL managed to draw customers to its showrooms. Then selling the
cars was not difficult."
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"Our
flanking strategy seems to have worked. The Rs 2,000-crore investment
is
showing results."
Jagdish khattar, Managing Director,
Maruti Udyog Ltd
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While the company has managed to boost its market
share, the strain is showing on its bottom line. On an average, the launch
of a new model costs Rs 400 crore. For the first time in its history,
MUL has made a loss-of about Rs 254 crore-in 2000-1 compared to a net
profit of Rs 330 crore the previous year. However, operating profit stood
at Rs 150 crore. "Five launches, a low indigenisation level and a
high Rs 340 crore depreciation took its toll on our bottom line,"
explains Khattar.
With MUL planning to launch one model every
year-this year it will be the Every-margins will continue to remain under
pressure. But, says a senior company executive: "If we bleed, others
will have a haemorrhage."
Perhaps that's the reason why most other companies
are introducing models in the higher-margin, lower-volume segment of cars
priced at Rs 8 lakh and above while MUL has launched cars across all price
segments. That is one segment where MUL has not made much headway. In
the first quarter of 2001, Baleno sales fell 72.6 per cent compared to
the previous year. But the surge in the small and mid-size segments more
than made up for this fall. MUL has nearly recovered its investments in
the plant for small cars. Therefore its margins on these cars are high,
even though it has not raised prices much. Says Vinay Piparsania, vice-president,
external affairs, Ford India: "In the crowded small car market, it
would be hard for new cars to break even at current price levels."
But even for MUL, the plan could prove to be
too ambitious. Maruti dealers are giving discounts of Rs 40,000 on the
Wagon R and Rs 15,000 on Maruti 800. "Growing the top line is okay,
but one has to keep in mind the cost. One has to take a holistic view
as the bottom line is also important," says Rajiv Dube, general manager
(commercial), Telco. MUL, on its part, hopes to make things up by actively
exploring non-manufacturing businesses.
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