Business Today Net Special

Maruti's Hot Little Thing

The Alto is the newest car off Maruti's production lines. Will it put the embattled company back on fast-track?

By Suveen K. Sinha

When Jagdish Khattar, the CEO of Maruti Udyog Ltd. (MUL), drove the new Alto down a slope on a make-shift stage at New Delhi's Intercontinental Hotel late last month, one man was praying that the brakes would stand the test. Heavy Industries Minister Manohar Joshi, sitting right in the path of the car, was effusive in his praise for the car.

However, it's not the blessings of political bigwigs that Khattar is targeting. What he is praying for is consumer approval and appreciation.

For, Alto has arrived at a time when the Indian passenger car market is already crowded with new models and variants. To make matters worse, last year's phenomenal market growth of 60 per cent has given way to near stagnation. There had been a growth of only 0.9 per cent till August this fiscal, although September sales figures are encouraging.

Apart from competition, Alto has its own share of convincing to do. Rivals are quick to point out that it looks like Zen and the fact that Zen is exported to European markets under the Alto brand does nothing to enhance product differentiation. This means the 1,061-cc Alto VX1.1, with a Delhi ex-showroom price of Rs 3,65,050, could compete with Zen LX [Rs 3.40 lakh, 996cc]. The price tag of 796-cc Alto LX, at Rs 2,99,513, is uncomfortably close to the Rs 2.59 lakh of Maruti 800 Deluxe. A Maruti executive admits that there was a protracted debate on the pricing of Alto LX, before pegging it below the psychological barrier of Rs 3 lakh. Dealers, on the other hand, are comfortable with the LX pricing, but feel uneasy with VX's. "Rs 3.50 lakh would have been better," says one.

Khattar is hoping that Alto will create a segment of its own, just like Zen did seven years ago. "Alto LX will be at the top-end of the entry level or the 'A' segment, while Alto VX1.1 will be at the entry level of the 'B' segment [the Zen segment]," says Khattar, emphasising that Alto is very different from Zen as well as Maruti 800. He also allays fears of cannibalisation. On the contrary, Maruti executives privately express the hope that Alto VX will mark the end of the road for Daewoo's Matiz, which has four variants priced between Rs 2.92 lakh [non AC] and Rs 3.95 lakh.

As Alto marks another step towards Khattar's avowed intent of having a model or variant at every price point ("So many cars will ensure that the customer don't have to look elsewhere"), cannibalisation is not the only concern. Surely, all those models (four new ones in the last 10 months) don't come for free. The two models of Alto have cost Rs 600 crore, and A.R. Halasyam, Director (Finance), MUL is predicting a further fall in the already declining profits (last year saw a drop of 37 per cent to Rs 330 crore). As a result, Maruti, once a debt-free company, has already raised Rs 200 crore in non-convertible debentures, and plans to raise another Rs 400 crore in bonds of five-six year tenure before this fiscal is out.

Clearly, the company has some tricky maneuvering to do in the future.

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