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Maruti says to cut costs to return to profit

Indian car market leader Maruti Udyog Ltd, which reported its first ever loss in the past year to March, is pushing to cut costs aggressively to help it return to the black, its annual report says.

Maruti, in which Japan's Suzuki Motor Corp and the Indian government own 50 per cent each, has a dominating 58 per cent share of the country's car market, but was hit last year by sliding sales and higher costs.

"Your company is working closely with vendors to reduce cost and enhance quality. Increase in localisation of the models will further control costs," it said in the director's report to its shareholders.

"With investments in fresh capacity and extensive cost cutting efforts, the company is poised to reap the benefits of any upturn in the market," it said.

A combination of adverse state taxes, the introduction of more expensive low-emission engine technology and a bruising price cut to win back market share pushed Maruti to a net loss of Rs 2.694 billion in the year to last March.

It had a profit of 3.3 billion in the previous year.

The report shows that the company's losses widened due to a 37.6 per cent increase in depreciation write-offs following larger investments to launch new models.

It said a weaker rupee versus the Japanese Yen had hurt its bottomline since it imports a high percentage of auto-parts and machinery spares from Japan.

Maruti imported 33 per cent of its raw material and components in 2000-01 (April-March), 39 per cent of its machinery spares and 42 per cent of its spare parts, dies and moulds, the report said. Total imports were valued at Rs 16.277 billion.

SHARING COMPONENTS

Maruti is also working on sharing components across some of its eight car models and 35 variants to help reduce costs.

"The net loss, though contributed by macro factors like a weak rupee, has created a conducive atmosphere for hard decisions within the company," its annual report says.

Last month, the company closed an early retirement plan for which 1,050 employees, nearly 19 per cent of its workforce, signed up. The move will help improve productivity, it said.

Maruti's sales have grown 4.64 year-on-year in April-October, while India's car sales growth has been flat during this period.

The carmaker is expected to benefit from a projected 8-10 per cent yearly growth in total car sales in the country over the long term.

Maruti had an over 80 per cent share of the domestic car market until 1998 but has lost out since then to newer foreign entrants such as South Korea's Hyundai and Daewoo Motor and domestic firm Tata Engineering and Locomotive Co Ltd.

The annual report shows Maruti's operating profit margin has continuously dwindled -- to minus 2.7 per cent in 2000-01 from 5.9 per cent in the previous year, 11.3 per cent in 1998-99 and 18.1 per cent in the year earlier.

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