Maruti mulls African plant to drive exports
Dec 27 2012 , New Delhi/Mumbai
Europe share in overseas sales dips to 30% from 70%
The company is scouting for new export markets and Africa is more or less untouched, chairman R C Bhargava said in an interview. Countries that are on the cusp of motorisation may be key to Maruti’s plan of doubling exports in the next four years as Europe struggles to recover from a slowdown, according to Mayank Pareek, head of sales.
“We will look at local assembly for two reasons,” Bhargava said. “Firstly, there’s usually a tax advantage. And second, there’s pressure from governments in these countries to assemble models locally.”
A local manufacturing facility will help Maruti drive down costs for buyers and boost sales in these emerging markets for basic models such as the Alto and M800, said Umesh Karne, an analyst at Brics Securities. Exports as a share of revenue shrank to 10 per cent from two years earlier as sales of its A-Star compact hatchbacks dwindled in Europe, prompting the automaker to turn to Africa.
“Whenever import volumes rise above a certain threshold, countries impose duties, so after a certain point, Maruti will have to look for local assembly,” said Mumbai-based Karne. “Africa is at the same level where India was about 10-15 years ago. Basic cars without airbags or other features will allow Maruti to offer low prices and sell large volumes.”
The automaker may face hurdles setting up any production facility overseas as a few countries may mandate local purchase of some components, according to Mahantesh Sabarad, an analyst with Fortune Equity Brokers India in Mumbai.
“Setting up an ancillary base will be the biggest challenge,” said Sabarad. “It will be a whole new learning experience.”
Exports as a share of total sales at Maruti have declined from 15 per cent two years ago. Shipments overseas in the year ending March 31 may stay little changed, chief executive officer Shinzo Nakanishi said this month, after dropping 8 per cent to 127,379 vehicles in the previous 12 months. The numbers peaked at 147,575 units in the year to March 2010.
Europe, which accounted for 70 per cent of Maruti’s exports three years ago, now contributes to 30 per cent as the debt crisis in the region damped demand. Car sales this year are due to plunge to the least in the European Union since 1995, according to auto-industry group ACEA.
Algeria in northern Africa is the biggest market for Maruti, followed by Indonesia, Chile and Australia, Pareek said. Maruti also sells inSouth Africa, Morocco and Egypt. “The mix is completely reversed now,” said Pareek. “If you had conceded that Europe is gone, you would’ve been finished. The whole idea is take up the challenge and find alternative markets.”
The company is exploring Colombia and the Dominican Republic to boost sales, according to its annual report. The automaker will refrain from setting up factories in countries such as Indonesia and Thailand.