Honda May Make Small Cars To Take On Suzuki In India

Honda Motor Co., Japan's second- biggest automaker, is studying developing small cars with engines of less than 1.2 liters to woo buyers in India, where its market share is a tenth of rival Suzuki Motor Corp.

The small cars will also enjoy tax advantages in India, where they make up 75 percent of the market, Masahiro Takedagawa, chief executive of Honda Siel Cars India Ltd., said in an interview at its headquarters in Tokyo yesterday.

Honda is challenging Suzuki's dominance in India, where its unit Maruti Udyog Ltd. has a 50 percent market share compared with Honda's 5.5 percent. Nissan Motor Co. and Tata Motors Ltd. are also developing cheaper, smaller cars to entice the nation's 45 million motorcycle and scooter users.

``The key is which non-Indian automaker coming to India can cut costs furthest in order to compete with the local companies,'' said Koji Endo, a senior analyst at Credit Suisse Group in Tokyo.

India last year cut the federal excise tax on small cars to 16 percent from 24 percent. The change only affected petrol cars that are shorter in length than 4 meters (13.1 feet) and powered with engines smaller than 1.2 liters. India's car market, Asia's fourth-biggest, may triple to 3 million vehicles a year by 2015, according to government estimates.

Maruti Suzuki Autocross Solan 2007 Rally

Sunny Sidhu of Chandigarh won the Maruti Suzuki autocross solan 2007 rally for maruti made vehicles in upto 1100 cc vehicles and Suresh Rana from Manali won the first prize in Gypsy category.

Rehan khan from Delhi was adjudged the best rider in the two wheeler category championship.

40 top seeded drivers and riders from Jaipur, Delhi, Noida, Punjab, Haryana and Chandigarh participated in national level competition.

Specially designed start gate and 400 metres long track was laid down to test the skills of the drivers as well as the endurance of the machines.

The event was sponsored by Maruti Suzuki and supported by Indian Oil Corporation, Airtel, Pepsi and Indian Express.

Buy Maruti Udyog At Current Levels: SP Tulsian

Investment Advisor SP Tulsian is of the view that one can buy Maruti Udyog at current levels.

Tulsian told CNBC-TV18, "Maruti has reported sales of about 59,000 plus 59,440 for May 2007 and first two months sales figure has been more than 1,09,000 that means in April they effected sales of more than 50,000 while in May more than 59,000 and now there has been recent development that government is totally moved out of the company and about 55% stake is now held by Suzuki and close to 40% is held by mutual fund, insurance companies, banks and FIIs. So there is a very little floating stock of about 4-5% of Maruti into the market.

He further added, "The company’s performance by and large has been good about Rs 54 EPS for FY07. I think they are going to post a topline growth of at least 20% and maybe bottomline growth of also 20-24%. If you want to take a long-term call lets not get perturb by the acquisition cost which for this gentleman it is slightly lower than the present market price. But I am quite hopeful and have positive outlook on Maruti in the short to medium-term and even on the longer-term outlook. So my advice is that one could really go and buy at these levels but only thing he has to keep a longer-time horizon in his mind of at least 6-12 months. So my call on the company is clear buy at these levels."

Maruti May 2007 Sales Up 11.2% yoy

Maruti Udyog Ltd., India's largest passenger vehicle maker, said on Friday that its sales rose 11.2% last month, on the back of strong demand for Swift and Zen Estilo hatchbacks and the new SX4 sedan. Maruti Udyog Ltd, said it sold 59,400 vehicles in May, up 11.2 per cent from 53,396 units a year earlier. Maruti said it sold 55,952 units in the domestic market, also up 9.9 per cent from 50,904 units a year earlier.

Exports surged 38.4% to 3,448 units from 2,492 units in April 2006. Japan's Suzuki Motor Corp has a majority stake in Maruti.

Facelift And New 1.2-litre Petrol Engine For The Maruti Swift

Suzuki has announced a facelifted Swift hatchback range in Japan. The OEM sells only the five-door model in the home market but revised three-door versions are also expected later this year in Europe, debuting most likely at the Frankfurt IAA on 11 September.

The changes for the Japanese market Swift include a new grille, foglamps, bumpers front and rear and, with the exception of the base version, indicators in the exterior mirrors.

Suzuki has also announced a new 1,242cc I4 gasoline engine for the revised line-up. The existing 1.3- and 1.6-litre gasoline engines are unchanged and the car continues to be built at the OEM's Kosai plant.

The revisions are the first seen on the Swift range since it went on sale in Japan in November 2004. The car itself was a spin-off from the S-2 concept which premiered at the Frankfurt show in September 2003, with the production model following at the Paris show a year later.

In Europe, three- and five-door hatchbacks went on sale with 1.3- and 1.5-litre gasoline engines and a 1,248cc turbodiesel (marketed as a 1.3-litre) in March 2005. All versions are built at the OEM's Esztergom plant in Hungary.

Build in China (a JV with Chang'an) and assembly in Indonesia also started in March 2005. In India, meanwhile, production of the five-door Swift started at Maruti's Gurgaon plant near Delhi the same month. The 1,248cc (marketed as a 1.2-litre) turbodiesel engine joined the 1.3-litre gasoline unit in January 2007.

Maruti Can Continue On The Right Lane?

Although rising interest rates threaten to push passenger cars to the middle lane, Maruti Udyog is geared to continue on the fast track with its new car models.

After Maruti Udyog did magic with the Swift, expectations are running high on its newly launched sedan SX4. Launched two years ago, the bold and beautiful premium hatch-back changed the perception of Maruti from being a manufacturer of staid looking last generation cars to one that is capable of producing contemporary cars with x-appeal. Coming eight years after it launched its last sedan offering Baleno, Maruti is hoping to take on competition in the A3 (sedan) segment with its SX4.

Even though Maruti has traditionally dominated the small car market, the company has been unable to conquer the sedan segment so far. Last fiscal, Maruti sold nearly 29,700 three-box cars, less than Honda, Ford and Tata Motors, with just two models Esteem and Baleno, both of which are showing declining sales.

While the company has a stranglehold over nearly 55 per cent of the passenger car market, it has a market share of less that 15 per cent in the A3 segment at a time when car-makers such as Hyundai, Ford, GM, Honda and new entrants like Mahindra-Renault combine are launching new models or expanding their presence in the segment. Fiat and Tata Motors too will launch their new models in 2008.

Certainly, the SX4 has the potential to do well. Built on the Swift platform with an all new engine, the car is priced competitively against the Honda City which is the leader in the segment at present. In spite of a powerful engine, a fully-loaded SX4 with safety features such as ABS and airbags is priced on a par with the base model of the City. If at all, growth may be constrained by Maruti’s capacity to produce enough cars.

Maruti has plans to expand capacity by another 2,00,000 but this will not come on stream this year. Currently, its Gurgaon plant which has an installed capacity of 3,50,000 units per annum is running at nearly double its capacity.

Its Manesar plant, which produces the Swift and SX4, has an installed capacity of 1,00,000 units. Since the company is already selling around 7000 units of Swift per month (84,000 per year) in the Manesar plant, there is little scope for SX4. The capacity at Manesar plant is expected to be scaled up to 3,00,000 units only by 2010.

“We have to live with it till the new capacity comes. But if Dr Reddy has his way the demand may get softened and match supply, and my marketing people would be very happy,” said Jagdish Khattar, managing director, Maruti Udyog in an analysts’ conference call organised after the company announced its annual results for 2006-07.

World's Automakers Jostle For A Place On India's Crowded Roads

Acacophony of horns, revving engines and squealing brakes fills Jagdish Khattar's 11th-floor office in Connaught Place, New Delhi's central business district.

The company Khattar runs, Maruti Udyog, makes half of the cars jostling on Indian roads and every automaker on the planet is fighting to add its vehicles to his traffic jam.

This year, India's 1.1 billion people will snap up vans, small trucks and cars - especially pint-sized models - more quickly than anyone except the Chinese, according to Global Insight. From 2006 through 2011, India will be the fastest-growing auto manufacturer among the world's top 20 carmaking countries, the accounting firm PricewaterhouseCoopers says.

Global Insight predicts that Chinese sales of light vehicles - cars, trucks and vans that weigh less than six tons - will soar by 50.6 percent to 12 million by 2012.

India's 216 million-member middle class is rushing to make up for decades of automotive deprivation. In 1991, P.V. Narasimha Rao began dismantling state controls that had shut out foreign companies and left India with only Maruti and two other homegrown automakers, Hindustan Motors and Premier Automobiles.

Rao, who was prime minister from 1991 to 1996, kept duties on auto imports as high as 100 percent and encouraged foreign carmakers to set up local assembly and manufacturing plants. Auto companies began to trickle in, led by Daewoo Motor of South Korea in 1995. Customers followed, buoyed by bank loans and rising salaries.

In the year that ended on March 31, Indian passenger car sales climbed 21 percent to 1.38 million. By 2015, they are expected to almost triple to three million, according to the Society of Indian Automobile Manufacturers.

Khattar, a former civil servant who ran a government-owned cement company and sold Indian teas in London from 1979 to 1983, says that Maruti has advantages in luring new car buyers.

GM, Honda and others assemble cars in India, importing most of the parts. Maruti, which is 54 percent owned by Japan's Suzuki Motor, builds cars from scratch. Maruti's new subcompact called the SX4 shows another of the company's selling points. The model has two airbags, anti-lock brakes, an anti-theft system and automatic climate control. It sells for 689,000 rupees, or $16,980, in New Delhi. The equivalent Honda model, called the City ZX, costs 727,000 rupees without the frills.

"Our competitors can sell at our price, but can they produce at our cost?" Khattar said.

So far, investors are backing Khattar. "Everyone will have to beat Khattar because he knows the Indian market well," said Amit Kasat, an auto analyst at Motilal Oswal Securities. Maruti's stock price soared to 829.9 rupees on May 22; the government sold a 25 percent stake to the public in June 2003 at an issue price of 125 rupees. On May 10 of this year, the government sold its remaining stake for 23.6 billion rupees. Shareholders, including banks and insurance companies, now own 46 percent of Maruti; Suzuki owns the rest.

"He has done a great job to get Maruti among the most profitable car companies today," Govindarajan Chellappa, an analyst at Credit Suisse Group, said of Khattar. "What else could shareholders ask for?"

One thing is better roads. Outside Khattar's window, Maruti 800s, the smallest car the company makes, jostle with Toyota Corollas, Chevrolet Aveos and swarms of other models - some so tiny that they could fit on the bed of a U.S. pickup truck.

During Mumbai's rush hour, traffic crawls at 10 kilometers, or about 6 miles, an hour.

India's $14 billion highway development program is not keeping up - for drivers or carmakers. "We are not able to grow the way we should," said Rajeev Chaba, the president of General Motors India. He says India's inadequate roads and ports are part of the reason the country trails China as a car market.

MUL Divestment: A Profitable Exit

The Government's exit from Maruti Udyog is significant. Pragmatism displayed in the past has helped in higher returns from the share sale.

THE GOVERNMENT's exit from Maruti has passed off without any controversy. On May 10, it sold its residual stake of 10.27 per cent in the company to a group of financial institutions, banks and mutual funds for a total consideration of Rs. 2,368 crore, which works out to Rs. 797 a share. Those institutions had bid for the shares. The purchase consideration varies among bidders. For instance, LIC, which has successfully bid for 130 lakh shares, by far the largest number, is paying Rs. 800 for a share .On the other side, Corporation Bank is shelling out Rs. 850 a share for its acquisition of 5.88 lakh shares. Two mutual funds, Reliance MF and HDFC MF, have also acquired chunks of Maruti shares.

While these institutional investors are likely to unwind their positions at an opportune moment, the question arises as to why a direct sale to retail investors was not considered. After all, a large number of them participated in Maruti's initial public offer in 2003 and made it a resounding success. Many investors have seen their initial investments appreciate considerably.

The success of the Maruti IPO had catalysed the primary market. By not going through with a public issue the Government may have denied retail investors a chance to own a blue chip at an attractive price.

In January 2006, the Government had adopted a similar strategy to sell an eight per cent stake. State owned banks, insurance and financial companies were the beneficiaries that time. The justification on both occasions, never made public, might have something to do with keeping down issue expenses to the minimum. An IPO entails a huge expenditure.

Sensitive issue

A more plausible reason is that the Government did not want to draw attention to the divestment. An IPO generates plenty of publicity. Divestment, disinvestment or by whatever other name it is called, has become politically unacceptable even if, as in the Maruti case, it is only disposing of a residual stake.

Under the UPA government, no distinction is made between privatisation (where control of a public sector enterprise is transferred to a private party) and dilution of government equity in stages. Privatisation is completely out. Even the latter, where it does not bring down the government stake substantially, has been opposed politically.

For the Government, perhaps the most embarrassing aspect is its inability to win political consensus to sell off its minority stake in companies whose control had already passed on to private parties.

Strategic sale of profitable PSEs was becoming popular under the NDA government. The buyer paid a control premium and was also given the first option to buy the remainder of shares. In the case of listed PSEs, the buyer has to make an open offer to buy a substantial number of shares from minority shareholders on the same terms.

By questioning the actions of the previous government on ideological grounds, the present government has landed itself in a legal logjam. The right of the strategic buyer to acquire the balance shares offered has been opposed.

Thus, Sterlite, which had bought a majority stake in Balco some time ago, is unable to buy the balance shares, even after it had exercised its contractual right. The matter is now before the courts. The Government also stands to lose from the delay caused by legal battles while the fortunes of the company concerned suffer because of the uncertainty.

Under these circumstances, the Government has done well in Maruti's case. P. Chidambaram said, "The Government earned a handsome return. Maruti is an example, which showed that Government could enter an industry at an appropriate time and exit at an appropriate time.''

Why Maruti is unique?

Unfortunately Maruti has been the only one of its kind. Whether one looks at from a disinvestment perspective or from a much broader angle of collaboration between two unlikely partners, Maruti is probably unique. The joint venture with Suzuki Motor Company of Japan gave India its first modern car in the mid-1980s.

The car, the 800, has consistently defined affordability in personal transportation. Maruti continues to sell large numbers of the 800 even though it has other, more recently launched small cars in its stable. Despite intense competition it has the largest market share.

It is not as though relations between the two partners were always smooth. There have been at least two well-publicised spats between the two. In 1997, it was over the choice of the company's top personnel, with Suzuki backing Jagdish Khattar over the Government's nominee, R. S. S. S. L. N. Bhaskarudu. (Mr. Khattar continues to be the Managing Director). At that time there were apprehensions that Suzuki would not transfer its gear box technology to the Indian company thus blocking the latter's drive for complete indigenisation. Both these issues were solved albeit over time.

The second time a dispute between the two was publicly aired was in September 2004. The issue then was whether Suzuki was being fair to Maruti and its shareholders by announcing substantial investments in a new company (in which Maruti would be a minor partner). Fortunately this too was resolved with Suzuki.

In both cases, the pragmatism shown by the Government helped resolve what could have become highly contentious issues.

Again, it is its farsightedness that brought superior returns for the government beginning with the spectacularly successful IPO in July 2003.

Maruti Eyes Commercial Vehicle Segment

Maruti Udyog is eyeing an entry into the commercial vehicle market in India which it finds very attractive. However, the company officials said it would first study the study the commercial vehicle markets before deciding to enter it.

Suzuki has 1-1.6 litre engine commercial vehicles in its portfolio that would suit India and the company also has the advantage of a send this article to a friend network across the country. Suzuki has around 20 per cent market share in China in the commercial vehicle segment.

Maruti Residual Sale Floor Set At Rs 760, To Get Rs 22.50 Billion

The government expects to raise close to Rs 22.50 Billion (2,250 crore) by selling its 10.27% stake in Maruti Udyog to banks and financial institutions. A floor price of Rs 760 per share has been fixed for sale of government’s residual stake in the automobile giant, marking its final exit from the company after more than two decades.

Once the sale goes through, the government would have netted just short of Rs 50 Billion (5,000 crore) from its stake in Maruti between 2002-2007. Slap on the Rs 10 Billion (1,000 crore) control premium Suzuki paid up and the tally goes up to nearly Rs 6,000 crore.

As many as 36 banks, financial institutions and mutual funds have expressed interest in buying the government’s stake. These include LIC, SBI, Corporation Bank and Union Bank of India, a government official told reporters here on Wednesday.

“We hope to complete the sale by tomorrow,” the official said.The government plans to sell all the 2.96 crore shares (of Rs 5 each) held by it, representing 10.27% stake in Maruti.

Only bids of at least Rs 10 crore will be considered for the oversubscribed sale. Already bids have come in for 3.59 crore shares as against the 29.6 Million (2.96 crore) shares on sale. On Wednesday, Maruti’s shares were trading at Rs 802.05, up by 0.02% from the previous day’s close. According to sources, the bids were to be opened on Wednesday, but the process was postponed since heavy industry minister Santosh Mohan Deb was away. The government had invited expression of interest for the stake sale in February, but deferred the selling due to the volatility in the stock markets.

The government was also awaiting Suzuki’s green signal for allowing LIC to increase its holding beyond 10%. Suzuki has no objection to LIC hiking its stake in the company and the public sector institution would be allowed to participate in the bid, the official said.

LIC holds over 8% stake in Maruti after buying more than half of the shares sold by the government last year. When the government sold 8% stake in Maruti last year, it was stipulated that no financial institution would be allowed to increase its stake beyond 10% through the disinvestment process.This is the third stake sale by the government in the car market leader.

In mid 2003, the government sold 27.5% stake to the public at Rs 125 per share mopping up around Rs 993 crore in the process.This was after the government diluted its stake in the company in May 2002, to hand over control to Suzuki for a premium of Rs 10 Billion (1,000 crore).

Last January, it sold another 8% at an average price of Rs 678.24 a share netting Rs 15.67 Billion (1,567 crore) in the process. Currently Suzuki holds 54.2% stake in the company.