Toyota Kirloskar Motor (TKM) is aiming to clock the highest profit in a decade for this financial year (2017-18), riding high on operational efficiency and pricing premium on models such as Innova Crysta and Fortuner.
This has been a difficult year for the company because of the move to the goods and services tax (GST) regime, with increasing pressure on its under-utilised capacities. In the first 10 months of FY18, it sold 103,891 units, 3.53 per cent less than its sales in the corresponding period of FY17, according to the data from the Society of Indian Automobile Manufacturer (Siam).
But, Vikram S Kirloskar, chairman, TKM, said he was hopeful of good performance thanks to operational efficiencies the firm had adopted swiftly over the past two-three years. “The company had taken on a challenge of improving its overall operational efficiency. The efforts seem to be paying off now,” said Kirloskar, adding this was led mostly by efforts to reduce its carbon footprint.
Toyota is not listed in India and doesn’t share its financials. In FY17, it reported a net profit of Rs 5.51 billion, against Rs 5.05 billion in FY16. After being in the red for a few years, it reported a profit of Rs 5.29 billion in FY15, according to filings with the Registrar of Companies.
In the absence of volume-spinning models, the combined average utilisation rate for TKM is half its installed capacity. It can produce up to 310,000 units per annum.
Unlike other global carmakers — Ford, Volkswagen and Nissan — that deploy excess capacities for exports, Toyota’s facility in India concentrates on the domestic market. Exports comprise only 10 per cent of overall volumes.
Its energy consumption also largely depends on renewables, said a top official of the company.
Other efficiencies include optimal utilisation of steel yield (70 per cent), which TKM claims is the highest in the world, and improving truck load efficiency from 64 per cent to 70 per cent. All these measures have helped it lower the annual break-even volume from 11,000 five years ago to 8,000 units now.
“The profits in 2017-18 will be the highest in 10 years,” said Shekar Viswanathan, vice-chairman, TKM. He attributed the expected financials to a pricing premium and a relatively stable rupee, which has kept the company import costs in check.
“We have a lot of pricing power in the market. It helps us to take more risks and push products in the market aggressively,” he said.
Prices of Crysta and Fortuner have gone up by 2-4 per cent last year. For Innova Crysta it is up 0.72 per cent, after taking GST into consideration.
With the launch of the Yaris sedan in May, which will be made locally, TKM expects the capacity utilisation to improve by at least 10 percentage points. Yaris will be positioned in the mid-sized segment and will compete with the Honda City, Hyundai Verna, and Suzuki Ciaz.
“Yaris will be a game changer,” said Viswanathan, pointing out that it will give TKM more pricing power — not only with this model but with others as well.
Mahantesh Sabarad, head, retail research at SBI Cap Securities, attributed profit maximisation to the premium pricing and zero discounts Innova and Fortune enjoy in the market.
“The pricing premium on Innova seems to be the single largest factor that would have driven the profitability,” he said. A higher localisation, which can help shave off costs by almost a third, could be another reason, he added.