Maruti sees drop in demand for auto sector in FY 12

Mumbai, Feb 3 (PTI) After two consecutive years of highgrowth, country''s largest carmaker Maruti Suzuki fears a dropin demand for the auto sector in FY 12 driven by factors likehigh inflation, the ensuing rate hikes and high fuel prices, asenior official said.

"Things like high inflation, the rate hikes and the fuelprice increase point out to tightening of the situation...weneed to be wary and careful as the buoyancy we saw till nowwill definitely slow down a bit. There would be someresistance," the company''s Chief General Manager, Marketing,Shashank Srivastava told reporters on the sidelines after thelaunch of its luxury sports sedan Kizashi last evening.

Srivastava, however did not give any estimate, innumbers, about the possible slowdown which the company isforeseeing in the auto sector.

"Nobody had predicted that the auto industry will grow at30 per cent this year and 23-24 per cent last year whichincluded period of a slowdown. Similarly, it will be verydifficult to estimate in numbers about the next year," hesaid. .

Headline inflation, which was at 8.43 per cent in December 2010, is a double-edged sword for auto companies asit affects consumer confidence as well as results in ratehikes which makes vehicle finance dearer.

The Reserve Bank has hiked its key rates seven timessince the beginning of 2010 in order to tame the runawayinflation which gets transmitted to the lending rates.

Meanwhile, the crude prices continue to be volatileinternationally and have recently breached the USD 100 abarrel mark which may affect car purchase decisions.

The company is confident of closing FY11 with sales of1.2 million units as it is consistently doing around 100,000units a month, he said. Commodity prices on the input side andforex exchange movements will have an impact on the company''sprofitability, he said.

For the long term, the India story stays "verybullish" even though he is "not sure" about next year,Srivastava added.

The company, which controls over 50 per cent of thedomestic market, is ramping up capacity by upto 5 lakh units ayear by end March 2013 by erecting two plants having acapacity of 2.5 lakh each at Manesar near New Delhi, he said.

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Maruti Suzuki is advancing the completion of first of the plants by three months to the third quarter of FY 12 while thesecond one should be ready by March 2013, he added.

The company''s total production capacity will reach 17lakh units a year from the present 12 lakh after both the newplants become operational. It presently operates a 8.5 lakhunits a year plant in Gurgaon and a 3.5 lakhs a year plant atManesar, he added.

The withdrawal of subsidies in Europe has caused a blipin exports presently, Srivastava said adding that the companywill be concentrating on newer markets and consolidating itspresence in existing ones to drive exports.

It expects to close FY 11 with a flat 1.47 lakh unitsbeing exported, the same as the earlier fiscal.

Last fiscal, it had exported around 4,000 units in Egyptlast fiscal and expects in sales in the last quarter as afallout of the recent political turmoil in the African nation,Srivastava added.

On the domestic front, the company plans to appoint anadditional 100 outlets in FY 12 to its current distributionnetwork of close to 900 points of sale, Srivastava said. PTIAA AP DK