Maruti banks on increased sales of diesel models

Car manufacturer to invest Rs 1,700 cr to increase manufacturing capacity of engines powered by the fuel by 75% through the next two years

Sharmistha Mukherjee / New Delhi Jan 13, 2013, 00:00 IST

To improve profitability in the coming financial year, Maruti Suzuki India is banking on increased sales of its diesel vehicles. The company, which is investing Rs 1,700 crore to increase its diesel engine manufacturing capacity 75 per cent through the next two years, expects diesel vehicles to account for about 43 per cent of overall volumes by 2015.

Currently, diesel vehicles account for 38 per cent of Maruti's overall sales.

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Half the planned capacity of 3,00,000 diesel engines at a new manufacturing facility would be commissioned this year. An additional production capacity of 1,50,000 units would go on-stream in 2015.

Higher sales of diesel vehicles would reduce the discounts being offered by Maruti and add to the company's revenue in the coming quarters, said senior company executives.

Chief Financial Officer Ajay Sheth said, "With sluggish demand for petrol cars, average discounts during the second quarter shot up to an all-time high of Rs 14,750, 30-40 per cent higher than the discounts offered usually. This had a hit of 100 basis points on our margins. The change in the product mix in favour of diesel vehicles would help improve profitability. There are no discounts on diesel vehicles. We have also increased sales of the new Alto, for which there are no discounts."

In the quarter ended September, Maruti Suzuki offered average discounts of Rs 14,750 a vehicle, compared with Rs 12,600 in the year-ago period.

Industry estimates indicate in the first eight months of the current financial year, sales of diesel vehicles rose 40 per cent, accounting for 58 per cent of India's passenger vehicle market. In the same period, the demand for petrol-powered models declined 16 per cent.

Currently, the company has an order backlog of 1,10,000 units of the Swift and the DZire and 20,000 bookings for the Ertiga. More than 90 per cent of these bookings are for diesel variants. "We had a production loss of 77,000 units due to the lockout at Manesar. But work was underway at Suzuki Powertrain. We would try to recover the lost numbers in the third and fourth quarters," said Sheth.

In October 2012, the company had increased prices by Rs 2,500-5,250. Sheth said the positive impact of the price correction would be reflected from the third quarter.

For the quarter ended September, Maruti Suzuki's net profit had fallen 5.4 per cent to Rs 227.50 crore, compared with Rs 240 crore in the year-ago period, owing to labour woes at its Manesar unit and high discounts aimed at pushing petrol vehicle sales This was the company's fifth consecutive quarterly fall in net profit.

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