A day after Maruti Suzuki India (MSI) registered a healthy double-digit growth in net profit in the first quarter of 2009-10, Ajay Seth, the chief financial officer of MSI spoke to Yogima Seth of Fe in an interview.

How do you explain Maruti Suzuki India?s significant jump in net profit in the first quarter of 2009-10 as against the decline in the last quarter of 2008-09.
Our net profits grew by 140% on quarter-on-quarter basis to Rs 583 crore in the first quarter of 2009-10 due to softening of commodity prices, lower adverse foreign exchange impact and lower expenses due to our cost reduction initiatives.
On the contrary, in the fourth quarter of 2008-09, the commodity prices were high and there were higher discounts on products which resulted in decline in profits. Moreover, there were higher foreign exchange losses due to cancellation of forward contracts.

Since Maruti is the largest passenger car manufacturer, are your sales numbers a reflection of healthy revival of the overall industry? How do we see the industry in next three quarters and what will drive growth at Maruti?
The government had taken several measures to boost demand like excise duty reductions and policy rate cuts for improving liquidity. The sales numbers in the first quarter reflect increase in demand due to these measures. It is also the result of our growing customer base that includes rural India and higher sales to government employees and our reach in new markets
However, we are cautiously optimistic for the future and are watching the market very closely. We have adopted a flexible approach and looking at each month as a target.

How has the currency fluctuation impacted exports and royalty payment by the company to its parent company in Japan. What has been the increase in royalty this time vis-a-vis same quarter last year and the last quarter of FY09?
Since Maruti Suzuki India has now become a net exporter, the impact of foreign exchange has been favourable in the first quarter of the current financial year. Our royalty expenses as percentage to net sales rose by 70 basis points to 3.6% year-on-year and by 20 basis points quarter-on-quarter on account of increase in sale of royalty paying models and 25% appreciation in yen vis-a-vis rupee in the quarter ended June 30, 2009 as compared to the corresponding quarter of the last financial year.

What are Maruti’s hiring plans for 2009-10?
Our recruitment plans are in line with our business objectives. We plan to strengthen our research and designing capability and intend to increase the manpower capacity for R&D to 1,000 engineers by the end of 2009-10. Maruti’s hiring plans are intact and have not been affected by slowdown.

How is the company gearing up to meet the growing demand of its cars in terms of capacity expansion? Also, what are the company’s specific plans to meet the scarcity of Swift and Swift DZire, considering that the two cars have a high waiting list?
We have a capacity of producing one million cars. Our two plants in Gurgaon and Manesar are capable of producing more cars than the installed capacity due to the improved efficiency and flexible manufacturing capabilities. We are working towards more flexibility in terms of capacity of our production lines to produce cars according to the market demand.
We are currently running at full production for our diesel models and have the flexibility for third shift working for catering to the market requirements. Diesel engines are now progressively being made available and we see no problem in meeting higher demand of diesel products like Swift and Swift DZire.

What are company’s capex plans for 2009-10 and how do you plan to fund this?
We would be incurring Rs 2,075 crore for our capital expansion plans this year. While the company has already spend Rs 330 crore in first quarter of this year, majority of the capital expenditure for 2009-10 would be for research and development test track, new models and capacity expansions.
Maruti Suzuki India generate sufficient internal accruals to finance our capital expenditure and we do not need any external funding for them. Our profits take care of our capital expenditures.

Do you plan any new launches this year? Also if there could be alternate fuel variants of your existing vehicles?
Maruti works for increasing customer satisfaction by providing value for money and fuel efficient cars. The company had earlier said that we would launch one model per year and in the past 40 months we have launched nine models. Our product portfolio certainly contains cars having alternate fuel technology. We already have Maruti 800, Wagon R and Omni in LPG variants. We have recently launched Alto CNG variant. Our strategy is to have at least one alternate fuel car in each segment. CNG/alternate fuels are in our agenda and we will share more details closer to the launch.
As a company policy we do not discuss product plan in advance however we will keep excitement level high in the market with product refreshment and variant all throughout the year.

How do you plan to increase your dealer network in the country in 2009-10?
A strong service and sales network base is prerequisite for a satisfied customer and dealer expansion is one of the continuous programs at Maruti. During the first quarter of 2009-10, our sales network grew to 702 outlets covering 478 cities from 681 outlets covering 454 cities at March 09.
We are in continuous effort of tapping new areas to boost our sales and have the plans for strengthening our dealership network in line with our target for one million domestic sales.