We import as there is little choice, should be self-reliant – Maruti Suzuki

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We import as there is little choice, should be self-reliant – Maruti Suzuki

Edited excerpts of an interview with Mr. R C Bhargava, Chairman, Maruti Suzuki with Business Standard dated 28th June, 2020:

• The answer to calls for boycotting Chinese imports lies in making Indian manufacturing much more competitive, deeper and widespread, but people should remember that shunning products from the neighboring country may lead to them paying more for goods.
• While stating that importing continuously for long period is not really in anybody’s commercial interest, he also asserted that certain products continue to be imported as there is little choice in the matter due to their non-availability in India, or because of quality and pricing issues.
• Everybody knows that importing products over time actually becomes more and more expensive as the rupee gets weaker. If you were importing something 10 years ago, the same product today will cost 60-70 % higher. So it is not really in anybody’s commercial interest to continue to import, you import because you really have little choice in the matter.
• The answer to the sentiments which are being expressed is to make Indian manufacturing much more competitive, much deeper, and much more widespread. What the Prime Minister has said about ‘Atmanirbhar’ means exactly that. If you start making more products in India at competitive prices, people will not import those products.
• Asked if companies, including those in the automotive sector, need to worry in the wake of rising voices against Chinese imports following Indo-China border clashes in Ladakh, Mr. Bhargava commented that this is a natural reaction to what has happened on the border. We had this happen with Pakistan also. It doesn’t become policy. He thinks the policymakers think carefully before they make or unmake a policy. They don’t react to popular sentiments.
• Explaining why industries in India import, he said that the reason why anybody imports is that either the product is not made in India, not available or what is made in India is not at the right quality or the product made in India is too expensive.
• He also underlined the need to understand whether stopping import will hurt or benefit India. If it is non-essential products it will not hurt us, but if it is essential then stopping imports is going to hurt us much more than it will hurt China. We need to see what the import is, what does it do to our whole industry, whether stopping imports is going to hurt us or benefit us.
• When asked if importing from China is inevitable under the current circumstances, Mr. Bhargava stated that it is inevitable unless we can find alternative sources of imports and which do not raise the prices to a level that consumers will get hurt.
• We should remember that consumers ultimately pays the price of imports, the same people who are asking for a boycott have to remember that in some cases it may lead to them being asked to pay more for the same product and asked are they ready for that.
• He also called for a comprehensive understanding of the circumstances and taking informed decisions on the pros and cons of importing from China before being swayed by sentiments.
• In case of stopping imports from China consumers will not get a car if a car has 2 per cent Chinese imports. He asked that if we stop that 2 per cent and stop making the car, who will it hurt, India or otherwise, how many jobs will Indians lose, how many people will lose a living, how much taxes will be lost.
• Commenting on instances of consumers cancelling bookings of vehicles from a Chinese auto firm, he said that it is the expression of a sentiment and he understands popular sentiment.

Consensus Estimate: (Source: market screener, investing.com websites)

• The closing price of Maruti was ₹ 5,701/- as of 29-Jun-20. It traded at 39x/25x the consensus EPS estimate of ₹ 147/231 for FY21E/ FY22E respectively.
• The consensus target price of ₹ 5,519/- implies a PE multiple of 24x on FY22E EPS of ₹ 231/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”