Maruti turns to Africa to boost petrol car sales

Maruti Suzuki aims to sell more petrol- engined vehicles abroad as Indians shift preference to cars running on diesel and “mitigate exchange risks,” Chief Financial Officer Ajay Seth said in an interview in New Delhi. The automaker will widen its offerings in countries it already exports to and add new markets, Shashank Srivastava, executive officer for product planning and international markets, said. 

Increased exports will help Maruti offset the costs of importing components as the rupee has weakened 19 percent against the dollar in the past year. Subsidized diesel is priced 39 percent less than petrol in New Delhi, encouraging Indians to opt for vehicles that run on the cheaper fuel and spurring the carmaker to push to sell more petrol cars abroad. 

“Markets such as Africa are seeing high growth and demand for our cars,” Seth said. “Most of the markets we are looking to export to are mainly petrol markets.” 

Maruti has an annual capacity to make 1.25 million cars. It sold 1.13 million units in the year ended March 31. The New Delhi-based automaker is utilizing 70 percent of its 880,000 petrol-engined cars capacity, Seth had said on June 12. 

The demand for diesel-engined variants has outpaced that for gasoline cars. Diesel-engined autos accounted for 39 percent of the 96,597 units sold in June, said Srivastava. 

Economies of Scale 

Maruti’s costs for importing components has more than doubled in the past few years because of the weakening of the rupee, Seth said. Exports contribute 8 percent of total sales, while it spends about 21 percent on importing components such as electronics and diesel engine parts, he said. 

“Exports will definitely help improve Maruti’s margin through economies of scale,” said Umesh Karne, an analyst at Brics Securities Ltd. in Mumbai. “If they manage to reach export volume of 18,000-20,000 units a month, then it will help earnings as it counters the unfavorable yen and dollar.” 

Hyundai Motor Co. (005380)’s India unit shipped 237,535 vehicles overseas, 38 percent of its local output, in the year ended March 31, according to the Society of Indian Automobile Manufacturers. Maruti dispatched 127,372 cars, and Nissan Motor Co.’s local unit exported 100,909 units. 

Maruti’s net income margin declined to 4.75 percent in the 12 months ended March 31 from 6.47 percent in the year-earlier period, according to data on the Bloomberg. 

Algeria, Indonesia 

The carmaker is adding models in markets such as Indonesia and Algeria which are similar to India, Srivastava said. 

“These are markets that are developing and the customer preference for cars are similar,” said Srivastava. “They want low-end, reliable and fuel efficient cars.” 

The automaker introduced its Dzire sedan in Algeria last month, Srivastava said. It already sells Maruti 800 and Alto hatchbacks in the North African nation. In Indonesia, it exports kits of its Ertiga van that are assembled locally, he said. 

Contribution of exports to Maruti’s sales declined to 9 percent in the year ended March 2011, from 15 percent in the previous 12-month period, according to data on the Bloomberg. 

Fuel Prices 

In the past two years, new car buyers have opted for cars that run on diesel as the price of gasoline surged in India. 

Gasoline prices have climbed 41 percent since June 2010, when rates were freed from government control, according to Indian Oil Corp. Diesel, which is still under state control, has risen 8.4 percent. 

That prompted Maruti to bolster its lineup of diesel cars. The Indian automaker signed an agreement, in January, to buy as many as 100,000 diesel engines from Turin, Italy-based Fiat SpA (F) and in March said it will spend 17 billion rupees ($309 million) to add a new line to make as many as 300,000 diesel engines annually by 2014, expanding capacity by 50 percent. 

Industrywide sales of passenger cars locally is estimated to rise as much as 12 percent in the year ending March 31, the industry group said in April. The group will review the forecast this month. 

Selling more overseas will cut dependence on “cyclical domestic demand,” said Srivastava. 

The challenge will be to get access to the appropriate sales network in the countries targeted, said Deepesh Rathore, New Delhi-based managing director of IHS Automotive in India. 

“It is very important to build the dealer network as the dealer builds the brand,” said Rathore. “If they can get the right dealer support, then they can pull it off.”