Upgradation and new models

The country's premier automobile manufacturer, Maruti Udyog Ltd., is likely to see an erosion of Rs 150 crore in its current year's profit (after tax). The company, which registered a profit of Rs 570 crore last financial year, will be posting around Rs 370 crore profit this fiscal, discloses A.R. Halasyam, director (finance).

Explaining the reasons for such a drastic fall in profits despite an increase in turnover by Rs 1,000 crore, volume by 10,000 vehicles and the recent price hikes, Halasyam says, "The 35 per cent yen appreciation during the year, as compared to 1999-2000, impacted our import costs and in the process eroded our margins to the tune of Rs 200 crore. In addition, each multi point fuel injection system costs us anything between Rs 35,000 and Rs 40,000, whereas the price hike effected by us is not commensurate with that." While declining to elaborate further, he says the some of the models are cross subsidised by others.

Though earning around $150 million in foreign exchange by exporting 22,000 cars last year, Maruti Udyog doesn't make any profits on them. "We are just covering our variable costs in export sales, something common with car makers the world over," he clarifies. According to him, the company would be posting a turnover of Rs 9,000 crore this year, of which sale of spares would account for Rs 360 crore.

Upgradation and new models

Meanwhile, the company, apart from investing around Rs 300 crore in upgradation of its plant by investing in robotics -- currently, the company has limited number of robots at shop floor level -- has chalked out Rs 2,000 crore capex to be made in two years' time for rolling out new models. Since MUL is a debt-free company with a net worth of Rs 2,900 crore, Halasyam says that most of the capex funding will be done from internal accruals and the balance through borrowings.

As regards the new models that would roll out after the fresh investments, an upgraded and powerful version of Omni, called Every Van, and a replacement for the popular 800 cc model are being planned. "At present, we don't have any plans to launch a two-seater car, code named C 2", he remarks. It may be recalled that MUL showcased this car at the recent auto exhibition held in Delhi.

In order to better manage its bottomline and business, MUL has started some new initiatives in vendor and dealer relationships and in cost cutting (click here for New Maruti initiatives). Halasyam believes these should be effective enough to get the company the desired results.

Disagreeing with the notion that Maruti vehicles are not the first choice of new car buyers any more, Halasyam argues,"We still command a 65 per cent market share, something no other car manufacturer anywhere in the world has achieved."

He's content to conclude the meeting with that.