GAIL will supply gas to Maruti’s new plant

GAIL (India) Ltd has agreed to supply natural gas to Maruti Udyog Ltd’s (MUL) plant at Manesar in Haryana. The government-owned gas company plans to develop pipeline infrastructure from Gurgaon for meeting the industrial requirement in areas like Manesar, Dharuveda and Bhiwadi in the state.

Sources said natural gas would be supplied through purchase of liquefied natural gas (LNG) on spot (as and when) basis in the international market. “Besides, long-term LNG supplies can also be made from international sources,” said an official.

Suzuki Motor Corp (SMC), Maruti Udyog’s Japanese parent, had in July announced fresh investment to the tune of Rs 3,000 crore in India, over and above the Rs 6,000-crore investment SMC and Maruti had already committed to India till 2010. The fresh investment will flow into the new car plant Maruti is commissioning at Manesar and the diesel engine facility coming up alongside.

MUL’s existing plant at Gurgaon is receiving regassified LNG of around 0.22 million standard cubic metre a day (mmscmd) since March 2004 at around $3.86 per British thermal unit (Btu) ex-Dahej LNG terminal. The price is exclusive of transportation charges and taxes. Besides, GAIL is supplying MUL propane at Rs 24,000-32,000 per million tonne.

Maruti Suzuki's managing director talks about the need for small cars

At a time when most of his colleagues are leading a life of leisurely retirement, Jagdish Khattar, 63, is facing the managerial challenge of a lifetime. The former India bureaucrat is managing director of Maruti Suzuki, the Indian subsidiary of Suzuki Motor, the Japanese automaker's biggest operation outside of its domestic market.

The Indian unit now faces an onslaught from global competitors rushing into the country with ambitious expansion plans. Honda (HMC), Toyota (TM), Hyundai (HYMZY), General Motors (GM), and others have announced plans to make small cars in India.

Maruti has 65% of India's one-million-unit car market and 11 brands, but is hardly sitting still. It will spend more than $650 million to make diesel cars and set up two new plants in Manesar in the northern state of Haryana, one of which was to be with Nissan Motor (NSANF).

However, Nissan recently scrapped talks with Suzuki and Maruti about a new car-making facility and instead will work through a joint venture between India automaker Mahindra and Renault (RNSDY) of France, which owns a 44% stake in Nissan.

Such are the current competitive dynamics facing Maruti Suzuki in one of the fastest-growing auto markets in the world. Khattar spoke to BusinessWeek.com correspondent Nandini Lakshman in New Delhi about the Indian car market and strategy. Edited excerpts of the conversation follow:

Now that the Nissan deal has fallen through, what does it mean for Maruti Suzuki?

When (Suzuki chairman Osamu) Suzuki was in India in September, he had made it clear that there were two parts to the Nissan deal. We were going to invest $2 billion in Manesar to produce 100,000 small cars for export to Europe. Nissan said it would pick up 50,000 cars from us for export, and that deal still stands. The second aspect about setting up a plant to manufacture 200,000 cars for Nissan's export markets was still under discussion, but that won't happen.

Today 80% of your revenues come from compacts and small cars at a time when there is a lot of action in the luxury car segment.

This segment is down 1%. It has grown with big companies and big launches, but where are the numbers to talk about? It is still the small car for the rest of the country.

MR Wagon: Maruti all set to launch their New Zen

As per market sources, Maruti Suzuki is all set to launch their latest new product in the Indian market. Maruti is expected to launch its replacement for the old Zen car in India next week.

This car is expected to be called MR Wagon and it was originally launched in Japan in 1999. The company is expected to have done massive changes to this model and it would be somewhat closer in looks to the Wagon R model.

This latest car should come in similar capacity of 1100 CC engine and the power output is expected to be around 64 bhp. Maruti is expected to market this car between the Alto and Wagon R segment.

The company is expected to price this car between Rs. 3.2 L - Rs. 3.5 L and several variants should be made available to target different segments of the market.

Jilted by Nissan, Maruti halves exports

Japanese major Nissan Motor Company’s decision to not build a manufacturing facility in India with Suzuki Motor Corporation may affect Maruti’s overall passenger car exports.

On his recent visit to India, Suzuki chairman Osamu Suzuki had said that his company would export 40% of total production — or four lakh vehicles — from India by 2010. But hours after the declaration by Carlos Ghosn, president and chief executive of Nissan, in Paris on Thursday about the change in plan, Maruti Udyog managing director Jagdish Khattar told DNA Money Suzuki’s export target from India will now be only 2 lakh units by 2010.

Which also means the production will come down from 10 lakh vehicles to 8 lakh vehicles.

“We had said that from the second plant Maruti is putting up at Manesar, we will export 1.5 lakh cars under the Suzuki brand name and another 50,000 under the Nissan badge. This arrangement remains.

The remaining two lakh cars that were to be exported by Suzuki from India would have been sourced from the new plant of Nissan’s,” Khattar said.

Nissan’s withdrawal comes within days of reports that the government has denied SEZ status to Suzuki’s Manesar facility — a request Osamu Suzuki had made during his recent visit, citing mega export targets from here. Suzuki had also sought corporate tax exemption for ten years, duty exemption on imported components and raw materials, according to industry sources.

When asked about the Government’s denial to grant the SEZ status, Khattar said: “We never sought this status so where is the question of Government rejecting it?”
But does Nissan’s retreat affect Suzuki’s overall investment plans for India?

Khattar says investments by the Japanese parent will come in as planned. This means the additional Rs 3,000 crore announced by the chairman will anyway find its way to the Indian subsidiary.

The Secretary General of SIAM, Dilip Chenoy, welcomed Nissan’s decision to source from the Mahindra Renault plant, saying a large plant which can manufacture multiple cars will lead to economies of scale and an overall cost advantage

Nissan whittles Maruti pact

Japanese carmaker Nissan has called off talks with Maruti Udyog Ltd to set up a plant in the country for manufacturing 200,000 cars a year. Instead, it will join the alliance between Mumbai-based Mahindra and Mahindra and France’s Renault SA, which owns 44 per cent of Nissan’s equity.

However, Nissan remains committed to the deal signed with Maruti, under which India’s largest carmaker, 54 per cent owned by Japan’s Suzuki Motor, will make 50,000 cars for Nissan for exports.

“When he was here, Osamu Suzuki (chairman of Suzuki Motor) announced a Rs 9,000 crore expansion plan, including the production of 50,000 Maruti models, which were to be exported by Nissan under the Nissan brand. There is no change in this stand. Osamu Suzuki also said there were discussions between Suzuki and Nissan for Maruti to produce 200,000 cars for Nissan for the export market. This will no longer happen,” Maruti Udyog Managing Director Jagdish Khattar told Business Standard.

The details of Nissan’s second project with Maruti — investment, capacity of the plant, models — were not announced.

Nissan’s decision follows a Renault and Mahindra and Mahindra announcement to build a plant in India for assembling 500,000 cars a year.

Following Nissan’s announcement, the Maruti stock fell 2.75 per cent in the Bombay Stock Exchange, making it the biggest loser among the Sensex stocks, even as the Sensex rose 0.5 per cent. The Mahindra scrip, on the other hand, climbed 6.15 per cent to Rs 828.05.

The project is part of Renault's strategy to boost global sales by 800,000 cars in 2009, compared with 2.5 million in 2005, on the back of rising demand in India and other Asian countries.

“We need to do more in India and we are very confident,” Renault Chief Executive Carlos Ghosn, who also heads Nissan, said at a news conference in Paris.

Today’s announcements drastically expand the scope of Mahindra and Mahindra’s existing agreement with Renault to build 50,000 units of the Logan, Renault’s successful no-frills car, at its plant in Nashik, near Mumbai, beginning next year. Mahindra owns 51 per cent of the venture and Renault the remaining 49 per cent.

The agreement announced today envisages a new assembly plant to build the Logan and its derivatives for the Indian market. Renault will also build a powertrain factory. Production is expected to begin by mid-2009 with an initial capacity of 300,000 cars per year, which would be scaled up to 500,000 in five years.

“The facility will not only produce the Logan, but new products from Mahindra and Mahindra as well, which will include utility and sports utility vehicles,” Mahindra and Mahindra’s President, automotive sector, Pawan Goenka, told Business Standard.

According to today’s memorandum of understanding, Mahindra and Mahindra will own 50 per cent of the joint venture. The rest will be shared between Renault and Nissan.

Maruti's all-new Zen set to roll out next week

The all-new Zen from Maruti Udyog Ltd (MUL) will be launched some time next week.

However, the supply of the car for sales would start from January 2007. The new 1.1 litre Zen would come with a base price of Rs 3.62 lakh to Rs 3.75 lakh and high-end model would be priced around Rs 4 lakh.

At present the base model costs around Rs 3.52 lakh while the high-end is priced at around Rs 3.81 lakh. The petrol as well as diesel version of the car would be launched simultaneously.

The new Zen is designed after Suzuki's MR Wagon but to encash the equity of the Zen brand the original name has been retained.

The new hatchback would compete with the likes of the yet to be launched Aveo- UVA of General Motor India, Hyundai Santro, Tata Indica and Maruti's own tall boy Wagon R.

According to people in the know, the floor of the new Zen has been lifted to make the vehicle taller unlike the present variant and is packed with almost all the features introduced in the Wagon R LPG variant.

Maruti stopped the production of Zen in March this year due to dwindling sales of the car.

Introduced way back in 1993 it once ranked among the top selling cars.

However, lately sales slowed down with the launch of newer cars like the Swift, the Wagon R and the Alto.

Mahindra & Mahindra or Maruti: Which one looks better?

Ashutosh Goyal of Edelweiss is of the opinion that even though Nissan is not partnering with Maruti, this will not have a huge setback as Nissan intends to market its cars under its own brand name.

He believes that it is a big boost for Mahindra’s efforts to increase their presence in the automotive space.

Is it a kicker for Mahindra and Mahindra?

Definitely it is a big boost for Mahindra’s efforts to increase their presence in the automotive space. So far they have only been targeting the utility vehicle segment, which is only 16-17% of the overall passenger vehicle market and they have also been saying that they want to expand their addressable market in the passenger vehicle segment and now with this alliance they will be looking at the entire passenger car industry.

What is your price target for M&M after this kick off from Nissan?

We don’t have a price target officially on M&M, we have a buy rating on Mahindra, it’s the top pick in the automobile space as of now. We don’t have official price target.

Why is it then the market seems to be valuing Maruti higher than Mahindra so much?

Maruti so far has been the only pure play car company, which is attracting higher valuations related to other players because it’s basically trading on the India consumption or the income growth story while Mahindra’s existing business of tractors and utility vehicles is considered to be a more cyclical kind of business. So that is why it has been attracting a higher valuation. But Maruti’s valuations are much higher, much richer compared to Mahindra’s valuation.

Accumulate Maruti Udyog: Edelweiss Research

"The global tie-up between Suzuki and Nissan, wherein Suzuki will supply more than 50,000 small cars produced by Maruti Udyog (MUL) to Nissan globally, as well as Suzuki’s plans to export another 100,000 vehicles under its own brand from Maruti, provides a big boost to Maruti’s exports. These developments are significant since the company’s exports had been lackluster recently following the phase out of the Alto from Europe. The initial exports are expected to kick off from FY09E onwards and Maruti is likely to ramp up the capacity of its new Manesar plant to cater to the export requirement. We expect exports to be 12% of total volumes in FY09 and increase further going forward."

"We believe Maruti will lose market share, though gradually, in the domestic market, given the expected introduction of several new models in the compact car segment by competitors, namely, Spark and Aveo UVA by GM, new Indica and the INR 100,000 car by Tata Motors, Getz diesel by Hyundai, and yet unnamed models by Honda and Toyota. Further, given the lack of a new product range in the sedan segment, Maruti’s performance in that segment will continue to be constrained in the medium term as buyers upgrade to bigger vehicles. We expect Maruti’s domestic volume growth to be at a CAGR of 13.6% over the next three years, as compared with the expected industry growth of 15-16% p.a."

"Given its scale of operations, Maruti has been in a position to extract significant cost efficiencies from all aspects of its operation—employee productivity, material procurement, vendor prices, and other factory costs. However, going forward, we believe improving margins will become increasingly challenging, due to 1) the introduction of new models, 2) commissioning of the new assembly plant, 3) pricing pressure resulting from increased competition, and 4) rising share of exports in the sales mix."

"At INR 911, Maruti is quoting at a fairly rich valuation of 17.7x FY07E and 15.8x FY08E our revised EPS estimates. Our earnings revision has been triggered by stronger than expected domestic volumes, better export visibility, and higher than estimated margins. As a result, we are also upgrading our recommendation to 'Accumulate’ from previous ‘Reduce’. However, in view of its volume growth lagging the industry, and sustained pressure on its margins, as well as the huge capex being undertaken, we do not recommend a ‘Buy’."

Nissan dumps Suzuki for Renault, M&M

Japanese auto major Nissan today said it has ended talks with compatriot Suzuki to set up a manufacturing plant in India as it was in discussions with French auto firm Renault and Mahindra & Mahindra.

"Nissan is committed to establishing a manufacturing presence in India as part of our global growth strategy. Nissan is in active discussions with Renault and Mahindra concerning a new industrial partnership, and will make a final decision within four months," the company said in a statement.

"In consequence, we will not continue discussions with Suzuki concerning a new industrial project in India," it said.

The company, however, reiterated that the previously announced agreement to work with Suzuki concerning original equipment manufacturer (OEM) supply from India of a new small car for sale mainly in Europe remained intact.

When contacted, Maruti Suzuki officials declined to comment on the development saying that the talks were held between its parent Suzuki and Nissan. Sources, however, said Maruti Udyog will make 50,000 units of small car a year for Nissan to be exported to Europe.

Nissan and Suzuki had, in June this year, announced expanding their business collaboration including sharing of manufacturing facilities in emerging markets starting from India. They had held discussions about jointly setting up a manufacturing plant largely for exports with a capacity of 2,50,000 units.

Govt. to divest balance equity in Maruti Udyog

The Union Government will decide on disinvesting its remaining 10.27 per cent shareholding stake in Maruti Udyog Ltd. (MUL) this month. Heavy Industry Minister Santosh Mohan Dev said the decision would be taken this month and implementation would be done next month.

Speaking to reporters on the sidelines of the directors' conclave on corporate governance organised by the Standing Conference of Public Enterprises and the Academy of Corporate Governance, he said a final note had been moved for the consideration of various ministries and coalition partners. He expressed confidence that the coalition partners would not object to it. In addition, he said that he would be holding meetings with leaders of Left parties in a day or two to discuss the issue.

Mr. Dev said a group of officers, headed by a Finance Ministry official, would decide on the mode of selling the shares so that the right price could be arrived at by the Government. Competitive bids were expected to be invited for divesting the equity on the same lines as done in January when 8 per cent stake was sold to Suzuki Motor Corporation for Rs. 1,567.60 crore. It may be recalled that the government had handed over the majority shareholding to Suzuki in 2002 and divested 27 per cent of its stake a year later through an initial public offer. It is estimated that the Government holding of 2.96 crore shares, could fetch around Rs. 2,793 crore at current prices for the Exchequer.

Maruti stake sale to be put before cabinet

Union Heavy Industries Minister Santosh Mohan Deb said on Wednesday he had formally proposed the selling of the remaining 10 percent government stake in car maker Maruti Udyog Ltd.

The ministry has sent a note to officials and the administration's coalition partners so the sale can be taken up by the federal cabinet, he told reporters.

"It can be done any time," Dev said.

The government said in August that it had no objection to the sale. Maruti is 54.2 percent owned by Japan's Suzuki Motor Co.

Maruti Alto Is Now India's Top Selling Car!

Car market leader Maruti Udyog Limited sold 55,894 vehicles in the domestic market in October 2006.

The company had sold 50,308 vehicles in the domestic market in October 2005.

In all, Maruti Udyog Limited sold 60,163 vehicles in October 2006. This includes 4,269 units of exports.

During the month, Alto sold a whopping 22,294 units. This was the highest ever monthly sales for any model and make in India. Previous record of highest sales was held by Maruti 800 (20,687 units in March 03)

Maruti’s volume in the domestic A2 segment went up by 23.5 per cent and in C segment grew by 21.6 per cent during the month compared to sales in October 2005.

Consumers derive most satisfaction from Maruti and Honda -TNS Automotive study

Maruti and Honda have been ranked the highest across multiple segments based on higher satisfaction with overall brand experience, suggests the latest TNS findings from the 2006 four-wheeler total customer satisfaction study.

The 2006 four-wheeler Total Customer Satisfaction (TCS) study conducted by TNS specialist division, TNS Automotive, claims to be the largest syndicated automotive study in India, representing the responses of more than seven thousand five hundred new car buyers. This study covers over 50 models with customer evaluations taken in the key areas of sales satisfaction, product quality, vehicle performance and design, after-sales service, brand image, and cost-of-ownership. The TCS index score provides a measure of satisfaction and loyalty a given model enjoys with its customers.

"Maruti's older models such as 800, Zen, and Esteem continue to lead their segments for Total Customer Satisfaction due to an enhanced ownership experience," said TNS Automotive senior VP Pradeep Saxena. "Maruti continues to maintain high levels of market share and customer commitment by delivering on its promise of peace-of-mind for the new car buyer."

Rankings for the TCS study are done at the vehicle segment-level to provide comparisons among similar groups of vehicles. The models ranking highest in their respective segments for total customer satisfaction are: Maruti 800 in 'Entry Compact'; Maruti Zen in 'Premium Compact'; Maruti Suzuki Swift in 'Upper Premium Compact'; Tata Indica Diesel in 'Small Car - Diesel'; Maruti Esteem Petrol in 'Entry Midsize'; Honda City in 'Midsize'; Skoda Octavia in 'Premium Midsize'; Ford Fiesta Diesel in 'Midsize Car - Diesel'; Honda Accord in 'Entry Luxury'; Toyota Innova in 'SUV/ MPV'; and Honda CRV in 'Premium SUV'.