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In Focus: Gaining Mileage

New models, export push and Nissan-Suzuki's contract to oil Maruti's growth

The country's largest car maker, Maruti Udyog, is ready to fire on all cylinders. Factors like the growth in sales of passenger cars and utility vehicles and reduction in excise duty on small cars are expected to benefit car makers like Maruti Udyog Ltd (MUL). Keeping these in perspective, Maruti has increased its capital expenditure plans to Rs 9,000 crore till 2010. It will be spending Rs 3,000 crore in capacity expansion of its Manesar plant from 1 lakh to 3 lakh units by 2007-08.

MUL has increased its earnings potential with its decision to buy out the entire 30 per cent stake held by Suzuki Motor Corporation in Maruti Suzuki Automobiles India Ltd (MSAIL). The merger of MSAIL with MUL will create value for all stakeholders, as the move will increase focus on critical issues of business operation.

The company has five new models in the pipeline in addition to variants and upgrades. MUL is also on schedule to roll out a new volume car exclusively for export. The diesel variant of Swift is expected to strengthen company's position in the respective space. Moreover, the Nissan-Suzuki compact vehicle will be built at MUL's plant. These cars will be primarily exported to Europe and sold under Nissan's badge. MUL is targeting export of 1,00,000 units per annum through a new car in 2008-09.

The company is likely to maintain its share of over 50 per cent in domestic car market. MUL has been growing at 8.4 per cent as against the industry growth rate of 7 per cent.

The company's earnings performance for the fourth quarter and full year was in line with market expectations. It is also mulling rationalisation of its products which may see some products being discontinued. It has also emerged the most cost-efficient car maker in the country and has been maintaining positive growth in operating profit margins over the last two years despite price cuts and hikes in input prices.

However, Tata Motors and Fiat's plans for diesel car market in India may throw up new challenge for MUL. Increase in input costs and oil prices remain areas of concern for the company.