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Formula Win

Maruti is doing whatever it takes to stay ahead in the passenger car market — racing ahead with premium models, experimenting with EVs, and taking the middle path with alternatives such as CNG.

V Keshavdev

We’ll have an abacus in our left hand and come out punching with our right. We don’t need to compromise.” This was the belliger-ent Osamu Suzuki’s comment to a Japanese reporter in 1997 at the peak of Suzuki’s fierce battle with the Indian government over the appointment of RSSLN Bhaskarudu as the managing director of the erstwhile Maruti Udyog, instead of Jagdish Khattar, who was groomed to take over the mantle by the then-outgoing RC Bhargava.

An eventual compromise came about during Atal Bihari Vajpayee’s tenure, followed by the complete exit of the government in 2007. Thanks to the determined doggedness of Osamu, the chairman of Suzuki Motor, Maruti Suzuki escaped the fate of Indian PSUs by not only emerging as the country’s biggest passenger carmaker, but also the jewel in Suzuki’s crown — contributing 50% to the parent’s consolidated profit.

While Bhargava, a former IAS officer, continues to serve Maruti as its chairman — a near four-decade-long association — Khattar retired from the company in 2007. Even today, the mentor and mentee believe the carmaker will continue to rule the Indian passenger car segment.

“At the peak of our socialist economy, manufacturing of cars was at the bottom of the priority list. We lived through the licensing era, survived with forex restrictions; we never gave speed money, rubbing a lot of people the wrong way; and also traversed the technology landscape,” narrates 84-year-old Bhargava, who had joined Maruti in 1981. Khattar, now an entrepreneur running a multi-brand automotive sales and service company, Carnation Auto, concurs. “When I was stepping down, many people asked, “Mr Khattar, so many players have entered the country, what will Maruti do?” I had replied, “More the players, the stronger will Maruti be.” They used to laugh when I said this, but today, concede that’s indeed the case,” says the former bureaucrat, who joined Maruti in 1993 as director of marketing.

Maruti came as a disruptor in the world of Premier and Ambassador. But today, the carmaker lords over a market that has players of every hue and origin. Of the 16 carmakers in the country, 10 sell less than 100,000 units against close to two million units that Maruti sells in a year. The Japanese carmaker’s stranglehold is visible in its 61% share of the passenger car market (See: Leader of the pack). The closest, or in fact, the farthest second is the Korean chaebol Hyundai Motor at 18.8%. The difference only gets starker if one takes a look at the financial dominance of Maruti, which churned out a profit of around 75 billion, with a cash pile of over 300 billion and a free cash flow of 59 billion. In fact, Maruti’s profitability is nearly double the combined profit of — Hyundai, Ford, Toyota, Honda, Volkswagen, Renault, Mercedes-Benz, Skoda and Tata Motors (standalone). Besides, it has been outperforming the industry in sales volume growth for the past seven years.

“Significant cost leadership, extensive distribution reach and wide product portfolio created several self-perpetuating virtuous cycles and a strong moat for Maruti, enabling it to consistently enjoy complete monopoly over industry profit pools,” states Mahantesh Sabarad, head (retail research) at SBI Cap Securities. The effusive praise is not without reason.

For an investor, Maruti has been the ultimate compounding machine — with the stock rising 26% every year since it went public in July 2003 — from its issue price of 125 to 6,539, against 15.03% for the Sensex during the same period. Over the past five years, the stock has compounded at 28% against 9.2% for the Sensex, on the back of 13% and 21.65% CAGR in sales and net profit respectively. The riveting growth has also come on the back of a strategy that comprised moving up the value chain, identifying product gaps and adding more muscle to its distribution reach.

REVVING IT UP

It was in FY12 that Maruti saw its market share plunge to its lowest at 38.3%, after a violent labour stir at its Gurugram and Manesar plants, resulting in huge production cuts. The situation was further compounded by a rising yen that made imports costly. But the killer blow was the growing differential in the price of diesel and petrol, which peaked at 27.19 per litre in July 2012, resulting in higher migration towards diesel cars. In fact, in FY13, for the first time ever, diesel car sales at 58% outstripped the sales of petrol cars.

A petrol car manufacturer, Maruti was caught short in the migration to diesel vehicles as its diesel engine capacity at 250,000 a year was minuscule compared with over a million petrol engines. Importantly, its staple A-segment models — 800, WagonR, Ritz and A-Star — did not have diesel variants. But seeing the customer transition, the company, in 2012, set up a plant in Gurugram that could churn out 150,000 diesel engines a year, besides procuring the same number from Fiat. In FY14, as the price gap between the two fuels narrowed, Maruti pushed its market share over 40% with sales of both petrol and diesel cars rising.

But the defining move by Maruti came when it started rolling out smart and snazzy models aimed at the new-age buyer, besides redefining the way it sold premium cars. Since 2011, Alto K10 (variant launched in 2000) and Celerio (hatchback launched in 2014) were Maruti’s only new offerings at the entry level. In 2012, the company launched Ertiga, a multi-purpose vehicle (MPV) in the mid segment, and Ciaz, a full-sized sedan in the premium segment, in 2014. It later took a swipe at the competition by launching several new models between 2014 and 2017 at a higher price point — a premium hatchback (Baleno), a compact SUV (Vitara Brezza), Ignis (hatchback) and a mini SUV (SCross). But given that compact and micro-mini account for 91% of the total passenger car market, Maruti ensured that it got its model concentration right.

Renault, Ford, Hyundai and Mahindra dominated the compact utility vehicle space with Duster, EcoSport, Creta and TUV300, respectively. Developed at its Rohtak R&D centre, Brezza was the first Maruti vehicle to be designed, developed and validated in India. Today, Brezza dominates the compact UV segment with over 44% share.

Moving up the value chain did not come easy. Previous attempts to go premium with the Grand Vitara SUV in 2001 and the Kizashi in 2011 had failed dismally. Maruti engineering head CV Raman, in an earlier interaction with Outlook Business, had revealed what had led to the makeover: “Today’s customer is not looking only at the value proposition of kitna deti hai. So, in all the vehicles launched after 2014, you see a change in how we have looked at vehicles, products or the consumer.”

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