August 12, 2011 / 12:55 PM / 8 years ago

UPDATE 1-Maruti Suzuki expects single-digit sales growth in FY12

* Maruti sales grew 25 pct last fiscal year

* Industry sales forecast at 10 mln-12 mln (Adds quotes, details)

By Devidutta Tripathy and Neha Singh

NEW DELHI, Aug 12 (Reuters) - India’s largest carmaker Maruti Suzuki expects to post single-digit sales growth this fiscal year, a far cry from its 25-percent rise last year, as rising interest rates and prices in Asia’s third largest economy force consumers to tighten their purse strings.

Car sales in India, the world’s second-fastest growing major auto market after China, fell 16 percent in July, their first drop in two-and-half years, after rising a breakneck 30 percent in 2010.

The Indian car market is now expected to grow by just 10 to 12 percent this fiscal year, down from an earlier forecast of 16 to 18 percent, the Society of Indian Automobile Manufacturers said last month.

“If you ask me, we will not reach a double-digit,” Chairman R.C. Bhargava told reporters, referring to both Maruti and the India car sector.

Maruti, which sells nearly half of all passenger cars in India, posted a record 25-percent slump in July sales.

The company, 54.2 percent owned by Japan’s Suzuki Motor , has cut production of most models in August, including its best-selling model Alto, as inventories were rising and there was no place to store cars, marketing and sales chief Mayank Pareek said.

Maruti is facing intensifying competition from the likes of South Korea’s Hyundai Motors , the second-largest car maker in India, as well as domestic rivals.

SECTOR TO REV UP

Bhargava said he expected the Indian car market to pick up speed in two to three months as the festive season kicks in.

The Indian festive season peaks in November, during the Hindu festival of Diwali, when it is considered auspicious to buy big-ticket items and when most employees get their annual bonuses. But sales are also driven by discounts at that time of year.

India’s population of 1.2 billion and the common sight of families of four riding motorcylces creates potential for massive demand, but the pressure is sure to remain in an industry spurred by a burgeoning and aspirational middle class that relies mainly on loans to buy cars.

India’s central bank has raised interest rates 11 times since March last year in an effort to battle stubbornly high inflation, a move that has hurt car purchases, most of which are financed through loans.

Still, Bharghava was optimistic. “Fundamentals here are very strong. There is still a huge domestic potential demand,” he said.

Editing by Jui Chakravorty

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