Expect double-digit growth; Rs 4,400 crore capex in FY17: Maruti Suzuki

Buoyed by record sales in the previous fiscal, Maruti Suzuki India on Tuesday said it expects to continue with the same momentum to clock a double-digit growth and has earmarked Rs 4,400-crore capex for 2016-17. The company, however, said the auto industry will be up against unfavourable conditions such as foreign exchange rate, increase in commodity prices and "environmental lobby" in the ongoing fiscal.

"We are taking forward Make in India programme with our manufacturing and we hope to grow in double digits in 2016-17. We are again setting a target of repeating double-digit growth despite the many challenges in the way. It's not going to be an easy year in any way," Maruti Suzuki India Chairman R C Bhargava told reporter here.

He further said that all the positive factors including the softening of commodity prices and foreign exchange rates are not that positive now as they were earlier. The company has been focussing on increasing its manufacturing activities, localisation through more vendors and would continue the same this fiscal, Bhargava said.

"However, it is not going to be easy as some of the favourable factors in the previous fiscal such as forex rate, and commodity prices are reversing this year," Bhargava said, adding "we also have the environmental lobby which would like to stop or reduce our production of cars".

In 2015-16, MSI posted 10.6% increase in sales at 14,29,248 units, out of which 1,23,897 units were exported. Its net sales were also the highest at Rs 56,350.4 crore, beating the previous best of Rs 48,606 crore in FY2014-15.

When asked about the capital expenditure plans of the company for the new fiscal, he said: "This year, we will be spending around Rs 4,400 crore. This will be mainly used for strengthening our R&D and building our marketing and sales infrastructure." Last fiscal, the company had spent Rs 2,500 crore on capex.

He said the company's team for land acquisition is in place and already Rs 800 crore has been invested for expansion of its sales network.

Commenting on the company's production plans, Bhargava said commencement of roll out of vehicles from the Gujarat plant has been advanced by five months. "Originally, the Gujarat plant was scheduled to start production from May 2017 but we are likely to start from January 2017," he said.

The production at Gujarat plant would begin from January and on a single-shift basis and the company is looking to churn out around 10,000 units from there in the current fiscal. In the meantime, the company is working to stretch production at its two existing facilities in Gurgaon and Manesar to produce a total of around 1.57 million units a year. 

"Our current capacity is around 1.43 million units from the two plants. Our engineers are working to enhance it. We can stretch it up to 1.57 million units but will be mostly in Manesar since we cannot increase production at the Gurgaon plant much as movement of heavy trucks create inconvenience to the people staying around the plant," Bhargava added.

Commenting on global market expansion, MSI Managing Director and CEO Kenichi Ayukawa said the company is exploring the possibility of establishing assembly operations in Africa.

"It is at a very nascent stage, there are people in our international markets' team who are exploring possibilities, specially in the African continent. If at all we do set up assembly plants, the minimum volume should be around 50,000 to 1 lakh annually," he said.

On the company's light commercial vehicles (LCV) project, Ayukawa said it will be launched in select regions in India in the first half of this fiscal.

"The launch of the LCV was delayed due to a variety of factors like development and changing market conditions. Since we are entering the segment for the first time in India, we want to be cautious," he said.

When asked about the launch, Ayukawa said: "In the first half of the fiscal, we will roll out the LCV in a select few markets in India and maybe after a year or two we will look for national launch." The company will rope in existing dealer partners to set up separate showrooms for the LCV, he said adding, "We are not considering to launch it in metros like Delhi considering the diesel issue here."

When asked about the company's investment for bringing Euro-VI compliant vehicles, Bhargava said: "On an average, we expect diesel vehicles to become expensive by up to Rs 1 lakh. Although investment would be put in by our vendors."