Sector Outlook 2022: Maruti Suzuki will announce a substantial price increase in a few days: Shashank Srivastava, Senior Executive Director

Shashank Srivastava talks about expectations from 2022, market share and plans related to SUV segment, Export market, price hike plans and product launch plans among others during an interview with Swati Khandelwal, Zee Business.

The problem of commodity price increase has put pressure on the profitability of the OEMs, said Shashank Srivastava, Senior Executive Director, Maruti Suzuki.

Shashank Srivastava, Senior Executive Director, Maruti Suzuki, talks about expectations from 2022, market share and plans related to SUV segment, Export market, price hike plans and product launch plans among others during an interview with Swati Khandelwal, Zee Business. Edited Excerpts:

Q: Overall numbers for December 2021 is out now. What trends are visible for 2022 and what should we expect from Maruti?

A: The figures that we saw for 2021 gives optimism as it is just the third year when the Indian auto industry has crossed the three median figure. In 2017, it was at 3.2 million and in 2018 it was 3.3 million and it stood at around 3.1 million in 2021. This is even though there was an issue related to supply constraints because of the semiconductor and the second wave of COVID, which was a big wave geographically as well as numbers, we have crossed the mark. So, there is optimism. Going forward, there are some uncertainties like inflation, commodity prices that has grown significantly and what impact that the further price increases will have on-demand. Thirdly, how big the expected third wave could be and what impact it can make on our economy. Otherwise, we can say that we can be cautiously optimistic for the next year.

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Q: Maruti Suzuki is India’s largest car company but your presence in the SUV space is slightly low as compared to the competition and the space is showing the highest growth. So, what strategy would the company have for the segment and what is your market share in SUV, what trends are visible, and will the company focus more on SUV launches as there is good traction in the segment?

A: Rightly said about the SUV market and if you will have a look at the whole year in 2021 then about 38% market belongs to the SUV. If you will have a market of hatches – still the biggest segment - is 41-42%, which is much bigger than the SUV. But it is correct that the SUV growth has been much higher if you take the last five years. SUV has grown well in the last five years. As far as our Maruti Suzuki’s market share objective is concerned, then we have to keep the market share at 50%, so, we will have to dominate all the segments which also includes the SUV segment. At present, Maruti Suzuki’s market share in hatches stands at around 66%. In passenger cars that includes sedan and hatches, we have a 62% market share. In MPVs that include Ertiga, Innova, Triber, Marazzo is present, our market share is around 65% and in Ogans Maruti’s market share is around 96%. So, there is just one space of SUV due to which Maruti’s market share comes below 50% otherwise, our market share is 60% plus. If you make a further analysis in this then entry SUV, which is about 50% of the SUV market, Maruti is the market leader and Brezza is a market leader, ever since it was launched. It is still the market leader. Our weakness, therefore, seems to be the mid-SUV segment, and, in this segment, we have to improve our sales and at the same time, we must look at strengthening the portfolio in this direction also. In the SUV segment, there are 43 brands are available in the market out of which just two belongs to Maruti Suzuki.

Q: The company has recorded the highest-ever monthly export in December 2021. Can you name the markets that are most promising and responding well? Also, going forward what would be the company’s strategy for exports?

A: Export has always been a large part of our overall strategy and especially if seen, we have taken the Make in India and Atmanirbhar Bharat mission seriously. This is why we are moving ahead at a great pace in the field of exports. If you will have a look at the numbers of December then we have exported more than 22,000 vehicles and 1.70 lakh vehicles across the year, which is around 180% more compared to the last year. There are many markets like Africa and Latin American markets, where we have seen good traction. Going forward, we expect that we will perform well in exports, therefore, we have turned the largest exporter of the country.

Q: You were increasing the prices this month. Looking at the cost inflation of last year by when can we expect price hikes and what could be the quantum, and do you think that there can be a need for further price hikes?

A: Rightly said, the problem of commodity price increase has put pressure on the profitability of the OEMs. Maruti Suzuki did not have any price hikes in 2020 because did not want to compromise with the demand because we were coming out of the COVID situation in which we are just not sure that how the demand will pan out. As market leaders, we are very conscious that price rise is the last resort for us. So, we didn’t take it in 2020 but we took three price hikes in 2021. In January 2021, we took a price hike of 1.4%, in April 2021, we took a price increase of 1.6% and in September of 1.9%. We have also announced that we will increase the prices in January 2022. We have taken staggered price hikes because we had an optimism that commodity prices may come down, therefore there was a need to maintain the demand by not increasing the prices a lot. But commodity prices somehow continue to be very strong maybe you have a look at the steel prices or copper or aluminium or the precious metals which go into the making of catalysers for BSVI vehicles. They remain to be stubbornly high and therefore we had no other option but to take another price hike in January. Still, we have not included the cost that has gone up due to the commodity in the price. I would like to inform you that material cost contributes to around 75% of the cost structure of the auto OEMs. Any increase in the material cost has an adverse impact on the cost of our industry. For instance, steel, which was available at Rs 37-38 has moved up to Rs 77, so, steel is still high, so, we will take a price hike as we have announced in a few days and going forward we are keeping a very closer watch on how the commodity prices move before taking any price hike.

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Q: What could be the quantum of price hikes that will happen this time? Also, as you have said that the material costs have almost doubled. So, will it translate completely or there will be a small price hike?

A: We are just working out and are at the final stages at present, so, I will not be able to give an exact figure that what would be the hike, but it will be substantial. Also, you are right that even this hike will not cover the entire commodity price pressure. So, we have to watch very carefully because we also have to watch the demand side. After all, we cannot compromise on the demand side too much. We cannot pass on the entire increase in commodity cost in price as it may have a negative impact on the demand. This is why we have to move forward in a very calculated manner, and this will be our wish in the coming future.

Q: When will Maruti’s first electric vehicle (EV) be launched as the segment is quite buzzing? Will the company launch its first EV in 2022 or still there are some doubts about the whole ecosystem?

A: In terms of ecosystem, still it is not the right time for large scale adoption of EVs. So, the direction that I have discussed in the past as well is that there is a consensus in the industry that the market will move ahead in the direction of EVs in the coming future but there is no consensus on the point at which large adoption will take place. So, people say that it will be somewhere in 2027-28, there will a point of inflexion when there will be a sudden increase in the sales of EVs. I have heard in the programme that there has been a good jump in EVs this year, but the jump means the market that stood at 0.2% last year has moved up to around 0.3%. So, it is a good jump from that aspect but overall, it is standing at just 0.3%. So, directions seem to be there, and we believe that the two major constraints which are restraining this large-scale adoption of EVs – this is just not limited to our country – are

(i) Cost of acquisition, which largely depends on battery cost as battery cost is 50-55% cost for the EVs

(ii) Charging infrastructure which will take time in being developed in our country.

Q: From the perspective of launches, how the year will be for Maruti Suzuki, you may not provide the details, but can you provide the number of vehicles that will be launched, or their variants will be out in the market?

A: Maruti Suzuki has always been quite strong in terms of the product portfolio. Our portfolio is the biggest in the industry, and we have 15 brands. And, if we would have seen in the last one-and-a-half years then new model launches have been less and we have launched just one model recently at it was Celerio and before that, we have launched XL6 and S-Presso. So, this year, we would like to be very strong, and we were always very strong in introducing new products that is why we have many brands in our portfolio. And we will continue to be very aggressive on product launches this year as well. In fact, there is an important thing that the audience may like to know that if you will see last year then it was a year where eight vehicles out of ten belonged to Maruti Suzuki. This means, Maruti understands the veins of the market and we are building up a very strong portfolio, we already have a very strong portfolio, but we will strengthen it further next year.

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