Hit by a raft of bad news over the past couple of years, India's largest carmaker Maruti Suzuki is increasingly showing signs it has put all of them behind as it gears up to defend its numero-uno position in the Indian market in an aggressive fashion.
A behemoth in the Indian auto industry, thanks to the sheer dint of scale it derived from its pre-liberalization, nationalized days, Maruti's hegemony appeared to be under threat around the year 2012 as rising competition, coupled with a slowing market, appeared to be taking off its sheen.
To make matters worse, it was hit by an ugly labour unrest that witnessed the death of a worker. This disrupted its supply chain, caused a dent in its brand value and resulted in its market share hitting an all-time low of 38 percent, from about 50 percent only a few years before that.
The above-mentioned developments resulted in sales and net profit coming off for the carmaker. Between financial years 2010 and 2012, its sales grew a measly 10 percent annualized (from Rs 30,656 crore to Rs 37,067 crore) while its net profits fell 20 percent (from Rs 2,545 crore to Rs 1,633 crore).
The poor financial performance showed up in the company's shares. Between fiscal years 2009 and 2013, every Rs 10,000 invested in Maruti would have increased to Rs 16,700 while the same invested in the BSE auto index would have grown to nearly Rs 33,000.
Much has changed for the carmaker since. The past one year has witnessed the company sail from one bit of good news to another – marred only by a few blips in between.
First, the carmaker has continued to play the volume game well by continuing to rejig its line-up of cars: it currently has 12 cars in the Indian market across the hatchback, sedan and utility vehicle segments, the most by any company.
Over the past few years, not only has Maruti been able to continue to satisfy the demands of its customers by keeping its line-ups fresh. It did this by not only phasing out the Maruti 800 or the slow-selling A-Star and Estilo but also by coming up with frequent facelifts for its bestsellers such as Wagon R, Swift and DZire.
Maruti has also taken a lead in continously bringing innovations to the industry such as launching the Ertiga (the first-of-its-kind major product to feature a seven-seater vehicle with a sub 2.0 litre fuel-efficient engine at a Rs 10 lakh price), bringing in automated manual transmission gearbox with the Celerio (which combines the fuel efficiency and low cost of a manual gearbox with the ease of an automatic) as well by launching most of its major products in a CNG version.
All of this has helped it regain lost market share, which is now back near the 50 percent mark.
While things appeared to have quietened on the labour front, Maruti also looked to diversify its labour risk by agreeing to a deal with its parent company Suzuki, which this year said it would launch a plant in Gujarat. The deal, however, met with stiff opposition from institutional investors who said it was unfair for shareholders of the Indian company as terms of the deal dictated Maruti would finance most of the plant's expansion (without having its ownership).
To that, Maruti sweetened the deal by removing most of the objectionable clauses – it is now expected that not only would the Gujarat deal meet shareholder approval, it would also result in immense savings for the company.
That's not all. A few days back, Maruti announced it would start paying royalty to Suzuki in Indian rupees rather than in yen (which stood at 6 percent of sales last year), another demand that institutional shareholders had raised in the past few years.
This would insulate the company from forex risks by fixing the net royalty outgo at a certain percentage of sales and not result in spikes during times of yen depreciation.
In an interview with PTI , chairman RC Bhargava also said the company is looking to further increase up its local research & development processes, which would result in royalties coming off further.
The recent yen depreciation, too, would help further help Maruti in the short term, as it would reduce the cost of parts it imports from Suzuki in Japan.
The yen is currently at trading at 105.3 to the US dollar, the lowest in five years and has depreciated 2.6 percent in the past one month itself.
According to analysts, every 1 percent depreciation in the yen increases Maruti's operating profit margins by 20 basis points, or 0.2 percent. Some believe this effect has not yet been factored into analysts' FY15 earnings forecasts.
The list of recent good news is rounded off with the list of launches Maruti has lined up. It recently launched the Ciaz, a premium sedan to replace the ageing SX4, which according to recent reviews has all the trappings of a blockbuster.
Beyond that, Maruti is looking to launch a compact sports utility vehicle. This would create its presence in the fast-selling segment that has recently been dominated by the Ford EcoSport and Renault Duster.
Not surprisingly, Maruti shares have been on a tear over the past one year, rising 122 percent, compared to a 58 percent rise for the auto index. But this could only be the start of the turnaround.
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