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Maruti predicts drop in demand

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After two consecutive years of high growth, the country's largest carmaker Maruti Suzuki fears a drop in demand for the auto sector in FY12 driven by factors like high inflation, the ensuing rate hikes and high fuel prices, a senior official said.

"Things like high inflation, the rate hikes and the fuel price increase point out to tightening of the situation...We need to be wary and careful as the buoyancy we saw till now will definitely slow down a bit. There would be some resistance," the company's Chief General Manager (Marketing) Shashank Srivastava told reporters on the sidelines after the launch of its luxury sports sedan Kizashi last evening.


Srivastava, however, did not give any estimate, in numbers, about the possible slowdown which the company is foreseeing in the auto sector.

"Nobody had predicted that the auto industry will grow at 30% this year and 23-24% last year which included period of a slowdown. Similarly, it will be very difficult to estimate in numbers about the next year," he said.

Headline inflation, which was at 8.43% in December 2010, is a double-edged sword for auto companies as it affects consumer confidence as well as results in rate hikes which makes vehicle finance dearer.

The Reserve Bank has hiked its key rates seven times since the beginning of 2010 in order to tame the runaway inflation which gets transmitted to the lending rates.

Meanwhile, the crude prices continue to be volatile internationally and have recently breached the $100 a barrel mark, which may affect car purchase decisions.

The company is confident of closing FY11 with sales of 1.2 million units as it is consistently doing around 100,000 units a month, he said. Commodity prices on the input side and forex movements will have an impact on the company's profitability, he said.

For the long-term, the India story stays "very bullish" even though he is "not sure" about next year, Srivastava added.

The company, which controls over 50% of the domestic market, is ramping up capacity by up to 5 lakh units a year by end March 2013 by erecting two new plants having a capacity of 2.5 lakh each at Manesar near New Delhi, he said.

Maruti Suzuki is advancing the completion of its second plant by three months to the third quarter of FY12 while the third one should be ready by March 2013, he added.

The company's total production capacity will reach 17 lakh units a year from the present 12 lakh after both the new plants become operational. It at present operates a 8.5 lakh units a year plant in Gurgaon and a 3.5 lakh a year plant at Manesar, he added.

The withdrawal of subsidies in Europe has caused a blip in exports at present, Srivastava said, adding that the company will be concentrating on newer markets and consolidating its presence in existing ones to drive exports.

It expects to close FY11 with a flat 1.47 lakh units being exported, the same as the earlier fiscal.

Last fiscal, it had exported around 3,000 units to Egypt last fiscal and expects decline in sales in the last quarter as a fallout of the recent political turmoil in the African nation, Srivastava added.

On the domestic front, the company plans to appoint an additional 100 outlets in FY12 to its current distribution network of close to 900 points of sale, Srivastava said.