Expect diesel car sales to surge, petrol sales to dip: RC Bhargava

India’s largest carmaker Maruti Suzuki India Ltd has announced an investment of Rs 26,000 crore to set up a new diesel plant at its Gurgaon facility and to expand its research and development (R&D) facility in Rohtak, Haryana.

The company is also planning to hike prices of its car models by up to Rs 17,000 due to the rise in excise duty declared by the finance minister in the Union Budget 2012.

Commenting on the developments Maruti Suzuki chairman R C Bhargava told NDTV Profit that the sale of petrol cars will decline in 2012-13 on the back of rising crude oil prices. “So, the only way to grow is to make more diesel engines. For 2012-13, the supply of diesel engine is limited but we are into phase one of our new diesel engine plant in Gurgaon and in middle of 2013, we will get an output of 150,000 diesel capacity,” he added.

Bhargava also expressed confidence the sale of its diesel cars would increase.

Shares of Maruti Suzuki rose 19.7 per cent in the period of six months, while the BSE auto index gained 18.80 per cent in the same period.

Read the complete interview below, and watch the accompanying video here.

 What is the outlook for 2012-13, what kind of investment and capacity expansion are you looking at?
 

The outlook of 2012-13 is better than 2011-12 because we will have availability of extra 150,000 diesel engines and today the market is such that you can sell as many diesel cars you make. There is a huge back order for Maruti and other car makers of diesel cars. So, if diesel cars make the future brighter, then we will sell 150,000 diesel cars next year. However, we will lose some 50,000 sales around in petrol cars compared to this year where there was loss of 15 per cent in petrol car sales but overall this means 10 per cent growth, we will sell domestically around 1.1 million cars.

The budget did not hike taxes on diesel vehicles. You did mention diesel sales but what is the forecast for petrol cars. Is there a decline on the cards?
 

Petrol sales will decline in 2012-13 because all indications are that crude prices are growing up and the only option for the oil marketing companies is to further increase the price of petrol. Politically, we will have to see how much increase in diesel prices is going to be possible. 

What are your growth expectations in the coming year, keeping this scenario in mind?
 

The only way to grow is to make more diesel engines for 2012-13. The supply of diesel engine is limited but we are into Phase One of our new diesel engine plant in Gurgaon and in the middle of 2013, we will get an output of 150,000 diesel capacity.

There has been a hike in prices corresponding to the hike in excise duty in the budget. Do you think given the weak demand scenario currently, it will impact sales figures?
 

I don’t see any impact on diesel cars but I do see an impact on petrol cars and that is the one of the reasons I said I don’t think petrol cars will enter in a positive territory even in 2012-13.

Labour trouble has caused Maruti sleepless nights in 2011. Wage revision is due in a few months. Do you expect any disharmony on the union front?
 

No. I don’t think there will be tensions on that front. The relation with workers is very good; we have developed a positive attitude. Well, wage negotiations will take place and that is a periodic event and I think it will pass soon. 

How have been the export markets doing for the company and your outlook for the same?
 

The export market in 2012-13 is not better than 2011-12. As Europe remains depressed I don’t think there will be an improvement in sales in that market. In other countries, we will sell more or less the same as the current year. 

The rupee is now back at 51 levels versus the dollar, will this impact your royalty payout and imported component costs and to what extent?
 

The impact rate of exchange rate is significant in royalty and I can’t predict how the exchange rate will change over the next 12 months. But because our volumes will go up by 10 per cent, there would be obviously an increase in total amount of royalty because of the volume increase.

What's the latest development as far as Gujarat is concerned? What can you tell us about the expansion and plans for that particular plant?
 

As far as the Gujarat plant is concerned, we will be able to make an announcement before the end of June this year. So you have to wait another three months for this announcement. We are making 31,000 cars a month and that’s roughly double than what was being made last year.