Management Discussion & Analysis

OVERVIEW

The past year was successively the third year of slow GDP growth. Interest rates remained high for consumers. However, low fuel prices, following international conditions and a reduced excise duty on passenger vehicles for a large part of the year helped demand. Sentiment was also boosted by a stable government at the Centre, a sharp increase in stock market indices, a stable Rupee and lower benchmark interest rates announced by the Reserve Bank of India.

The domestic passenger vehicle industry grew 3.9% by volume during the year against a drop of 6.1% in 2013-14. This was supported by the launch of new models by the industry and high sales promotion expenses.

With the government deregulating diesel prices, the gap between petrol and diesel prices came down further. It is now expected to remain stable. The share of diesel vehicles in the total industry sales came down to 48% from 53% in 2013-14.

The Company was able to perform better than the industry and increase market share to 45%, from 42.1% in 2013-14. Introduction of new models, focus on first time buyers, shift in demand towards petrol cars, revival of growth in urban areas and continued strong performance in rural markets helped the Company achieve a growth of 11.1% in domestic unit sales.

In exports, the Company launched new models in key markets and stepped up sales efforts. It was able to achieve a growth of 20.1%, despite stopping exports to Europe.

Total sales, at 1,292,415 units, were the highest ever for the Company, surpassing the brvious high reached in 2010-11.

The Company's focus on cost reduction contributed to the growth in profits. Debrciation of the Yen and softening commodity prices also helped. Marketing and sales expenses remained high to support entry level models and diesel variants in a tough market.

In January, the foundation stone for a vehicle manufacturing facility in Hansalpur, Gujarat was laid by Smt. Anandiben Patel, Chief Minister of Gujarat. This factory is proposed to begin operations in 2017, and supply vehicles exclusively to the Company. The contract manufacturing arrangement to this effect will be put to vote by minority shareholders.

The Board approved guidelines for distribution of dividends, to provide greater transparency to shareholders. The Board also proposed a rise in the FII shareholding limit to 40%, broadly equalling the level of non-promoter shareholding.

BUSINESS PERFORMANCE DOMESTIC MARKET

The market remained challenging during the year. Of 18 manufacturers, only six posted positive growth. Sales of the industry, excluding those of the Company, were down 1.3% during the year.

Besides growing faster than the industry, the Company's focus was on achieving growth across all models. With the correction in fuel prices, there was an increase in demand for petrol cars. Sentiment for the diesel segment suffered. The Company was able to make adjustments in its production plan and increase the supply of petrol vehicles in line with market demand. To arrest the decline in diesel sales, the Company stepped up efforts and also allocated a higher share of sales promotion expenses to diesel variants. Owing to these timely initiatives, the Company's diesel sales grew by 2.8% while industry sales declined 6.2%. The growth in Company's sales of petrol cars was 15%, broadly in line with industry sales.

In rural markets, the Company grew its sales by 23%, by increasing its reach to nearly 125,000 villages, up from about 93,000 in 2013-14.

The Company continued to expand its network of new car sales outlets, TrueValue and service workshops. The Company commissioned 289 'R-outlets', a dealer format meant for vehicle display and sale in semi-urban and rural markets. The Company provides after-sales service to customers in these locations with Maruti Mobile Support (MMS) vans. The number of such mobile service vans went up to 1,252 vehicles, from 1,000 in 2013-14, providing door-step service to nearly 60,000 customers every month.

To achieve its medium term goal of 2 million annual unit sales, the Company has a roadmap for expansion of its sales and service network.

The Company's br-owned car business (TrueValue) contributed significantly to new vehicle sales. Trade-ins accounted for 30% of new vehicle sales. Sales of br-owned cars grew 28%, helping dealer viability in a tough market.

New technology initiatives increased efficiency and enhanced customer convenience, at sales and service set-ups. A Maruti Mobile Application was introduced to provide, among other features and advantages, the facility of service bookings and service reminders to customers through mobile phones.

The Company was also able to grow sales of CNG-run vehicles by 23%, to about 63,000 units.

NEW MODELS

During the year, the Company introduced the much awaited mid-size, brmium sedan, Ciaz. With European styling, rich interiors and a host of upmarket features, the model has received a positive market response.

The Company also launched the new version of the Alto K10, which is 15% more fuel efficient and comes with an Auto Gear Shift (AGS) variant. The AGS technology, launched in the Celerio in February 2014 and offered in the Alto K10, has enthused customers. The Company is working with suppliers to ease manufacturing capacity constraints and reduce the waiting time for delivery to customers.

The Company also introduced refreshed versions of Swift and DZire. The new versions are about 10% more fuel efficient and offer numerous new features like a push button start, reverse parking assist and electrically foldable outside rear view mirrors. All the new models created excitement in their respective segments.

Ciaz Diesel was introduced as India's most fuel efficient passenger vehicle at launch, with fuel efficiency of 26.2kmpl. A few months later, one more product from the Company's portfolio, the new, refreshed DZire Diesel surpassed the Ciaz, with a fuel efficiency of 26.5kmpl.

FLOOD AFFECTED CARS IN JAMMU & KASHMIR

The Company undertook a massive effort to repair and restore thousands of customer cars damaged in the floods in Jammu & Kashmir, in the process mobilising nearly 200 service technicians from across the country to support the 300 local technicians. In record time, these technicians repaired close to 5,500 vehicles to help restore normalcy in the everyday lives of these customers.

VEHICLE LOGISTICS

The Company has partnered with Indian Railways to transport more finished vehicles by rail to its dealerships across the country. During the year, the Company increased the number of customised rakes designed to transport vehicles. It is working with the Railways to improve efficiency of operations and enhance utilisation of the rakes.

EXPORTS

The Company remains focused on enhancing exports to key markets in Africa, Latin America and Asia, and is expanding its sales network in these markets. The provision of service and the supply of parts are being strengthened. Best practices and processes from the Indian domestic operations are being adopted to these markets. Abrupt changes in regulationsin certain export markets, weakening economic situations and adverse currency movements are among the risks inherent in export operations.

The Company expanded its product portfolio in export markets. Popular models like Swift, DZire, Ertiga and Ciaz were launched in some of the major markets in Africa and Latin America. These models were received positively. For the first time, annual sales to non-European markets crossed 100,000 units.

PARTS & ACCESSORIES

In the past few years, the Company has steadily introduced new products and expanded the range of accessories, offering customers more options to customise their vehicles according to individual taste.

CAMPAIGN AGAINST VOR

During the year, the Company made a concerted effort to bring down the number of 'Vehicle Off Road' (VOR), defined as customer vehicles held up at workshops overnight for want of parts. After careful analysis, an optimum number of slow moving parts, including for discontinued models, was made available with distributors in each location. Through these and other efforts, the Company has been able to bring down the number of VOR substantially and enhance customer satisfaction.

OPERATIONS

The Company ramped up production in the recently commissioned Manesar Plant-C while production from the Gurgaon facility remained at a level similar to that of the brvious year. Total combined output capacity of all plants in Gurgaon and Manesar locations stands at about 1.5 million units.

The Company remains focused on achieving flexibility in operations to manage fluctuations in demand. In recent years, the Company has developed the ability to manufacture multiple models on the same production line. During the year, with sharp changes in relative prices of diesel and petrol reflecting in demand variations, the Company was able to switch production in favour of petrol cars in time. The Company is now building flexibility in the production capability for engines and transmissions as well.

The Company's Suggestion Scheme encourages employees at all levels to generate and execute new ideas for improvement and efficiency. During the year, over 560,000 suggestions were generated, leading to a saving of over ? 3,900 million. The Company continued to build on and enhance its in-house expertise in the design and development of dies. Through automation in design, capability development in simulation, and innovations in design and process, the Company is able to develop dies faster and also achieve a significant cost advantage over imported dies.

ENERGY CONSERVATION AND ENVIRONMENT SENSITIVITY

The Company continued its energy conservation initiatives. The focus was on reducing energy cost, conserving water and improving efficiency through new technology and optimisation in operations. A separate section in this Annual Report, 'Business Responsibility Report' discusses the environment - related and social performance of the Company in detail.

QUALITY ASSURANCE

The Company strengthened its efforts to maintain the highest possible levels of quality across the value chain. Besides regular quality-related initiatives, the Company has undertaken a major project to partner with 30 identified vendors where the scope for improvement is high. The Company's Quality teams visit the facilities of these suppliers, analyse all quality related aspects, create action plans jointly with the suppliers and monitor performance. During the year, over 1,500 visits were made to the facilities of these vendors.

The Company supports suppliers with knowledge and interventions in specific areas which have a major impact on overall quality. During the year, 60 training sessions were conducted covering ~1,000 vendor personnel to share best practices in areas such as maintenance of dies, moulds and jigs, appearance checks and checks of quality systems and manufacturing processes.

The Company undertook focused projects to improve the quality of Tier II suppliers. It also sensitised Tier I suppliers to extend their experience, systems and processes to Tier II suppliers and strengthen the quality ecosystem. In critical areas, the Company publishes manuals and operating standards for suppliers, to communicate expectations and achieve quality-related objectives.

The Company employs measures to benchmark and monitor quality levels. Initial Quality Studies (IQS) conducted by J.D. Power Asia Pacific bring out the trends in product quality for the Company and the industry, as experienced by customers. During the year, the number of problems experienced by customers declined.

RESEARCH & DEVELOPMENT (R&D)

The Company is developing capability and capacity to design & develop automobiles for India, Africa and the Middle East. To meet these objectives, it is investing in a world class R&D centre at Rohtak and recruiting and training R&D engineers. During the year, R&D manpower stood at 1,350. Going forward, the facilities at Rohtak will help in attaining capability in in-house design, development and evaluation.

To achieve its medium term goal of 2 million annual unit sales, the Company will have to offer more products and enter new segments. Live projects are being carried out, together with Suzuki Motor Corporation, Japan, to service the domestic and export markets and achieve the Company's goal. To reduce model development time and cost, the Company is increasing competence in prototype development and trying to improve co-relation between virtual and physical testing to reduce the actual number of physical prototypes.

Following the success of recent models, including Ciaz and new Alto K10, the Company is brparing to offer options in the SUV segment, as well as a light commercial vehicle.

After achieving high levels of fuel efficiency in all its new and refreshed models launched during the year, the Company continues its efforts to improve fuel efficiency, including weight reduction initiatives, reduction in coefficient-of-drag (Cd), high combrssion ratio designs, brcision throttle control technology and use of low friction engine oils.

The Company is on course to meet future emission and safety regulations.

COMPONENT & RAW MATERIAL PROCUREMENT

In line with the medium term goal of 2 million annual unit sales, the Company is working closely with suppliers to build optimum production capacity, ensure quality and maintain cordial industrial relations.

The Company continued its cost reduction efforts in partnership with suppliers. Projects in yield improvement and focused model cost down, together with alternate sourcing from more cost efficient sources, strengthened the Company's competitiveness. The Company will continue these efforts.

The Company recognises that a professional management and professional human resource practices are important brrequisites to scalability and reliability. During the year, the Company took initiatives to enhance vendors' managing capability through a four step programme: a) Sensitising vendor CEOs

b) Assessing the current maturity level in the human resources and industrial relations area,

c) Identifying areas of improvement and d) Implementing countermeasures.

FINANCIAL PERFORMANCE

Various cost reduction initiatives, higher sales, debrciation of the Yen and reduction in commodity prices helped the Company improve its operational performance. These initiatives significantly helped improve profits despite the impact of all-time high sales promotions expenses. The Company registered Net Sales of ? 486,055 million and Profit After Tax of ? 37,112 million, a growth of 33.4% over the brvious year.

TREASURY OPERATIONS

The Company has efficiently managed its surplus funds through careful treasury operations. The guiding principle of the Company’s treasury investments is safety and prudence. In view of this, the Company invested its surplus funds in debt schemes of mutual funds and bank fixed deposits. This has enabled the Company to earn reasonable and stable returns in a volatile interest rate scenario.

FOREIGN EXCHANGE RISK MANAGEMENT

The Company is exposed to the risks associated with fluctuations in foreign exchange rates mainly on import of components, raw materials, royalty payments and export of vehicles. The Company has a well-structured exchange risk management policy. The Company manages its exchange risk by using appropriate hedge instruments depending on market conditions and the view on currency.

INTERNAL CONTROLS AND ADEQUACY

The Company has a proper and adequate system of internal control to ensure that all assets are safeguarded and protected against loss from unauthorised use or disposition, and that all transactions are authorised, recorded and reported correctly. The internal control system is designed to ensure that financial and other records are reliable for brparing financial information and other data, and for maintaining accountability for assets and liabilities. The internal control system is supplemented by an extensive programme of internal audits, reviews by management, and documented policies, guidelines and procedures.

HUMAN RESOURCES

The performance of the Company is critically dependent on the knowledge and skills of its people, their alignment and ownership of the organisational and functional objectives, an enabling operating environment and the motivation and enthusiasm that comes with employees taking ownership of their responsibilities and tasks .

The Company revised its employee career progression policy, taking a realistic view of the current and future context of the organisation, the needs of the business and the aspirations of the people, while reinforcing elements of transparency, objectivity and decentralisation. The policy was communicated well to give the employees long term visibility on their contribution and career growth.

The Company is leveraging technology to give scale and speed to its efforts to encourage and bring about learning and development in a Maruti Suzuki Training Academy. In the year, this academy used a virtual classroom (web studio) that conducted 115 sessions for 14,663 sales and service staff in about 59 sites all over the country through video conferencing. Similarly it conducted 153 sessions to cover about 33,216 students of ITIs that the Company is supporting. The Company conducts outbound practical training programmes to cultivate leadership and team skills, trust, creativity and risk-taking. In all, 3,989 employees have been covered so far.

The Company conducted an employee engagement survey covering about 5,400 employees. This is a helpful tool for measuring and analysing employee engagement and motivation and taking appropriate decisions. The top management undertook several discussions on people motivation and considered new initiatives. They also engaged in frequent and regular sessions to communicate the business perspective to employees.

The Company continued to have cordial relations with the unions and the workforce. To take its communication with the unions on a higher level of mature engagement, the Company invested significant time and resources in building global exposure and awareness with the union in areas like the economic and business context, Suzuki Japan's systems and processes in redressing employee grievances group dynamics, building team skills and spiritual well-being and life skills. The Managing Director himself devoted time for regular interactions with the union.

For an all-round development of people, the Company created several opportunities like Parivar Milan, Diwali Mela, Family Day, counselling sessions for employees' children to facilitate understanding of career options and various sports events.

The Company inducted 751 people this year, now has 12,785 employees and has been able to limit attrition to 3.2%.

INFORMATION TECHNOLOGY

During the year, the Company's IT team was certified at level three of the Capability Maturity Model, popularly known as CMMI. CMMI highlights a structured approach to process improvement across an entire organisation to provide robust, efficient and cost effective IT solutions.

The Company also commenced work on the concept "Internet of Things" (IOT), a network of physical objects, embedded with electronics, software, sensors and connectivity, to achieve greater value and service by exchanging data. The interconnection of these devices can be used to enhance shop floor productivity by capturing data from a plethora of machines and robotics across the manufacturing lines.

To enhance customer satisfaction, several new technology ideas have been initiated. These include use of handheld devices (for digital catalogues) to provide product information to customers, especially at the smaller format outlets where display space is limited. MMS (Maruti Mobile Support) vans are now also increasingly utilising these devices to serve customers in remote locations.

RISK MANAGEMENT

The Company implemented a robust Risk Management process several years ago. The Enterprise Risk Management Committee (ERMC), headed by the Managing Director, periodically reviews the library of key risks and their appropriate mitigation.

Following certain regulatory developments during the year, the Company set up a Risk Management Committee (RMC) of the Board to monitor and review the evaluation and mitigation of risk. The RMC formulated a Risk Management Policy for the Company which was  approved by the Board. The policy outlines the risk management framework in the Company to help minimise the impact of uncertainty on the Company's strategic goals. The framework enables a structured and disciplined approach to risk management.

During the year, risk mitigation plans for the risks in the current risk library were brsented to the ERMC.

OUTLOOK

With a new stable government in India focused on manufacturing, ease of doing business and infrastructure investments, there is optimism on an economic recovery. Inflation appears to be benign, and there is an expectation that the trend of higher interest rates in recent years may safely be reversed by the RBI. Fuel prices are lower than in recent years and deregulation will help to align capacities better with demand. Although consumption remains weak, some positive growth in capital goods could be an indicator of revival of economic growth. The external sector has challenges, and the effect of the US Dollar on overseas markets remains to be seen.

It is difficult to forecast when the Indian economy will regain the path of rapid GDP growth. The Company remains focused on growing faster than the industry, supported by a robust product portfolio, brand strength, efficient operations and a quality network of sales and service outlets across the country.

The Company aims to achieve annual sales of 2 million vehicles in the medium term. It is brparing the value chain, including suppliers and dealers, for this goal. It is focused on sustaining and improving Quality in all areas of business. Besides adding new products in its traditional areas of strength, the Company will enter new segments and continue to offer technology and innovations that enhance the car ownership experience of customers in India and abroad.

DISCLAIMER

Statements in this management discussion and analysis describing the Company’s objectives, projections, estimates and expectations are categorised as ‘forward looking statements’ within the meaning of applicable laws and regulations.

Actual results may differ substantially or materially from those exbrssed or implied. Important developments that could affect the Company’s operations include trends in the domestic auto industry, competition, rise in input costs, exchange rate fluctuations, and significant changes in the political and economic environment in India, environmental standards, tax laws, litigation and labour relations.