The decline in sales of diesel engine cars after the introduction of the Bharat Stage 6 emission norms will further consolidate Maruti’s position in the domestic market
With retail demand showing signs of a gradual recovery in the rural areas and some of the smaller towns and cities, sales of Maruti’s vehicles may touch the FY 20 level in the second half of the current fiscal year and FY 22 is expected to be better, if the recovery in sales can be sustained, said chairman RC Bhargava in the annual report of the company.
The decline in sales of diesel engine cars after the introduction of the Bharat Stage 6 emission norms will further consolidate Maruti’s position in the domestic market, he added. Maruti might also have to delay its plan the shift its Gurgaon based plant due to Covid-19 related disruptions.
Investors have been bullish about the prospects of Maruti in the near term since it is likely to benefit from a shift in demand towards small cars because of a quicker recovery in demand in the rural areas and increasing preference for personal mobility on fears of contracting infection.
Maruti’s domestic wholesale dispatches touched the one lakh mark in July compared to 51274 units in June and just 13865 units in May. The New Delhi based car maker restarted manufacturing operation from May 12 at its Manesar based plant.
According to Bhargava, sales and service operations have become fully functional and the demand for Maruti’s products has recovered well since the economy in the rural areas is quite robust due to a good Rabi harvest and the expected normal monsoons.
“Our sales in the rural areas are growing faster than in the urban areas. We are hoping that in the second half of 2020-21, sales may near the performance of last year and 2021-22 should be better, especially if the Central and State governments recognise the importance of supporting faster growth of the car industry as a means of reviving the economy and creating larger employment opportunities," he added.
Due to the slowdown in the economy and increase in car prices due to changes in safety and emission related regulation Maruti and the entire car industry reported an unprecedented 18% decline in volumes in FY 20. The outbreak Covid-19 pandemic has further impacted the financials of vehicle manufacturers as sales plunged to record levels in the first quarter and recovery is expected to be slow.
During the financial year, Maruti also decided to stop manufacturing and selling of Bharat Stage 6 compliant diesel engine vehicles due to increase in cost of development. Instead the company is betting big on Compressed Natural Gas (CNG) driven vehicles which is considered more environment friendly.
“The pricing policy for diesel and petrol seems to have changed. The gap between the two fuels has become very small and in several states diesel is costlier than petrol. Your Company presently has no diesel products in the BS-VI range. The percentage of diesel cars sold by the competition has fallen quite sharply," Bhargava said.
“The market, at present, seems to favour smaller hatchbacks and petrol and CNG cars. Fortunately, we are well placed for such products."
Vehicle manufacturers like Maruti had to close their factories and showrooms from March 22, following the lock down announced by the union and state governments to contain the spread of the Covid-19 pandemic.
According to Bhargava, the woes of the auto sector were compounded by the COVID-19 pandemic even before the financial year ended and the lockdown from the March 25, 2020 led to disruption of the sale plans of all companies as the last week of March is always important.
“There could be no production in April and in May 2020 production was very limited extent because of the need to comply with all regulations and to ensure the safety of employees and customers. June production was better, and your company expects to gradually increase production and sales as the situation improves and workers return from their villages," he further added.
Click here to read the Mint ePaperLivemint.com is now on Telegram. Join Livemint channel in your Telegram and stay updated
