The Telegraph
Since 1st March, 1999
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Maruti gambles on its bestseller

Mumbai, May 3: Maruti Udyog, the country’s leading car maker, says it will continue to ride on the success of the Maruti 800 while acknowledging that this dependence on the big seller is one of the major risks in its business.

“We are substantially dependent on the Maruti 800, which constituted 42.5 per cent of our domestic sales volume in fiscal 2002,” Maruti said in its prospectus filed with the Securities and Exchange Board of India (Sebi).

Maruti is the largest passenger car manufacturer in India. The company sold 3,39,964 cars last fiscal with an overall market share of 58.6 per cent. Its product range includes 10 basic models with more than 50 variants.

“At present, we are the only manufacturer in India to produce passenger cars in the A-segment (priced below Rs 3,00,000), which contributed approximately 60 per cent of our domestic sales volume in the last fiscal,” Maruti said.

“A substantial portion of our sales volume is derived from the Maruti 800 model, which is an A-segment car. We anticipate that Maruti 800 will continue to dominate the small car segment and account for a substantial portion of our sales,” it added.

Maruti agreed that its future success would depend largely on continued demand for and market acceptance of the Maruti 800.

The company will have to test its ability to develop the Maruti 800 to meet the evolving needs of the customers and following the end of the product life-cycle of the Maruti 800, find another model that will generate similar sales volume in a similar price range.

Among the major risk factors is a change in consumer preferences, technological change or other factors that could reduce demand for the Maruti 800. In addition, a competitor could start manufacturing cars in the A-segment to compete with the Maruti 800, the company said.

Maruti said that Suzuki has waived the royalty on Maruti 800 and Zen, but this could change if the company acquires new technology from Suzuki.

The company is also concerned about the competition from import of new or pre-owned cars of various categories and from cars that are manufactured or assembled in India using imported components.

In April 2001, all quantitative restrictions on the import of automobiles into India were removed. The government has, since March 2002, allowed automatic approvals for foreign equity ownership of up to 100 per cent in entities manufacturing automobiles and components in India.

There remain relatively high tariffs on imports of automobiles and components and other restrictions such as quantity restrictions.

If tariffs on the import of new or pre-owned cars or components are reduced, or other restrictions on such imports are removed, the company could face increased competition from automobile manufacturers that import new or pre-owned passenger cars to India or manufacture passenger cars in India using imported components, the prospectus revealed.

Our ability to reduce our cost of production and thereby increase our operational efficiency is an essential part of our business strategy and we cannot assure you that our cost reduction measures will continue to achieve the operational efficiencies they have done in the past, the company said.

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