Maruti Suzuki reduces capex by 16% for FY21 to Rs 2,700 crore

New Delhi: The country’s largest carmaker Maruti Suzuki has reduced capital expenditure for the second year in a row in FY-21 given the uncertain market conditions post the outbreak of the coronavirus pandemic.

The company has reduced its capex by 16% in FY-21 or Rs 550 crore over the last years’ capex of Rs 3,248 crore. The board of directors of the company approved capex of Rs 2,700 crore for FY21. This is after spending 18% less in FY-20 at Rs 3,248 crore as against the guided capex of Rs 4,000 crore at the beginning of the last financial year.

Reviewing the Q4 earnings on Wednesday, Maruti Suzuki Chairman R C Bhargava said long-term the company is confident of growth prospects in the country. However, currently there are many uncertainties on supply, production and demand side as well as relates to the stimulus packages to be announced by the government.

“There is no point speculating (when demand will recover)…Car sales cannot happen in large numbers when the GDP is growing at 1-2%”, said Bhargava.

To be sure, Maruti Suzuki registered a steep decline of 18% in domestic sales in FY-20 to 1.41 million units missing its vision 2.0 target by a massive half a million units. And with Q1 of FY-21 almost washed out, the company may be staring at sub-1 million units sales in the worst case scenario of over 30% decline – if a substantial incentive is not extended by the government.

However, an immediate reduction in GST rates to boost demand may not be an opportune solution. Bhargava informed given that automobile production in the country will be limited the next couple of months, demand will outstrip supply. “A GST cut will be relevant when production increases and supply is more than demand. The government and the industry will have to determine the right time to do it”, he said.

Several automakers have only just restarted production operations, including Maruti Suzuki at Manesar, Haryana on a single-shift basis. Bhargava said a second shift will commence at the facility next week. Suzuki too is likely to re-open operations in Gujarat May 18-19.

Bhargava said movement of components as well as workforce remains restricted because of regulatory hurdles. The situation is challenging particularly for the company’s vendors’ many of whom are in red zones or containment areas, and is facing issues over availability of labour.

“We are expecting from now to the festive season, many of the practices being implemented now will improve, productivity will increase, supply chain will become robust, volumes will go up. We will learn to work both in a safe and efficient manner”, said Bhargava.

Meanwhile, the company said it is not looking at salary cuts or retrenching workers.

On the sales front, Maruti Suzuki has re-opened a third of its dealerships over the past week, 60% of these being in rural areas. The target is to open a total of 2000 outlets over the next few days. Market enquiries have started coming in through the digital channel, the company said. Maruti Suzuki has received 5000 fresh bookings and delivered 2300 vehicles in the last one week. The company has operational 1900 service workshops across the country.