Maruti Suzuki Anticipates Increased R&D Expenditure for Creating New Models

India’s largest manufacturer of passenger cars, Maruti Suzuki is currently facing a lot of competition from other manufacturers, especially overseas company’s as they announce plans for launching vehicles in the small passenger car market, a domain which has been led by Maruti so far.

Maruti recently reported that they expect the costs incurred for R&D to increase for 2011-12, as they plan to create new models so that they can maintain their 50% share in this rapidly increasing car market.

Maruti Suzuki India’s CFO, Ajay Seth was quoted as saying that the current expenditure on R&D is 1.1% of their net sales. They expect this to increase by 1.3% to 1.4% this year. Depending on the expenditure benefit which the government extends for R&D purposes, the tax charge should decrease by 26% to 27% as they move on.

Maruti, as we reported a while ago, plans on increasing their annual production capacity at their Manesar plant by an additional 5 lakh units. This coupled with R&D expansion in the works; the capital expenditure for the company is projected to reach around Rs. 40,000 crore for this year, and decrease later on.

For the year 2010-11, the company’s capital expenditure was Rs. 2,200 crore. Shinzo Nakanishi, the MD and CEO for Maruti Suzuki was quoted as saying that there is a short term doubt in India’s auto market, but they are confident regarding the medium and long term outlook. By increasing their efficiency and localisation, they plan on increasing their profit margins compared to its current level.

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