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Unformatted text preview: Way of Life! Annual Report | Sustainability Report 2016-17 Contents At Maruti Suzuki, we believe that all constraints whether external or internal have a brighter side to it. They encourage us to question the status quo, think afresh, work inwards, innovate and help us identify new opportunities and create new pathways of progress. Ever since inception, we have always tried to understand deeply the diversity of Indian customers, and we choose path (products, technologies and services), which is right for them. The path that we prefer may be non-existent, non-traditional or fraught with challenges in the current scenario; but eventually, it lays the foundation for our future success. Following this principle, we have made our foundation strong enough to emerge unconstrained. With the business environment getting increasingly dynamic, we may come across at a crossroad to choose or create a new path. Be it in the area of technology or product or customer interface or other business function. We continue to follow our principle of choosing and creating a path, which is right for Indian customers and strive to remain unconstrained in future as well. Putting India on wheels When we began our journey, we realised that India needed a small, affordable and fuel-efficient car. Although this was unthinkable at a time when all the enablers of democratising car ownership were non-existent, we had firm conviction that this was the right path for the long term. Despite constraints, we continued our journey on our chosen track. Small car success provided India a great volume. It helped the country move up the ladder in the world ranking of car market from 27th position in 1985 to the 5th largest market in the world in 2015. The country is now poised to emerge as the 3rd largest market as envisaged in the Automotive Mission Plan by the Government. This has also played a pioneering role in recognising India as a global small car hub. Volume brings in best-in-class technology, higher efficiency and makes investments feasible to develop world-class quality products. It also elevates the country to a commanding position internationally. Bringing more convenience at lower costs At Maruti Suzuki, we felt that automatic transmission was the need of the hour for India. There were numerous constraints in offering this feature in small and price sensitive cars. Nevertheless, we made all efforts to offer a cost-engineered product to fulfil customer expectations. This path-breaking technology enhanced convenience for Indian consumers. Traditional auto transmissions are not only expensive to own, but have a high running cost as well. AGS technology overcame both these disadvantages. 02 Maruti Suzuki India Limited Corporate Overview Unconstrained Reconfigured business model for more customer focus On the production side, we sensed that with growing scale, we might not be able to devote enough time required for creating customer delight. As the Indian market is poised to become the world’s 3rd largest market, sharper customer orientation would be required. To address this issue, we have identified a way of sharing some business responsibilities with our parent, Suzuki Motor Corporation. It is taking care of our further capacity additions. This arrangement will help us to free up our resources and focus on customer-specific functions like product development, R&D and sales infrastructure. Services to remain in proximity of customers Catering to the aspirations of global Indians We have also sensed that there may be a threat to customer satisfaction in future if the dealerships need to relocate to a remote location due to unaffordable land lease rentals. To obviate this risk, we have chosen the path of securing land by purchasing land parcels for dealerships. We also decided to address the growing need of Indian consumers for an enhanced buying experience. The result is the introduction of a premium channel – NEXA, which has been well received by our customers. We are also revamping our existing channel to provide our other customers an elevated customer experience. 03 Following the principle of choosing right paths along the journey, at Maruti Suzuki we have strengthened our foundation to deal with disruptions in the market effectively. Supported the Government’s bold reform The Government of India rolled out its seminal economic reform (demonetisation) in November 2016. This resulted in a lot of uncertainty in the market and an initial stress on sales. We focused our efforts on understanding customers’ need and identify solutions to make them comfortable. We geared all our business partners and dynamic employees, a part of the strong foundation of the Company to act in unison and deliver what is right for the customer in that situation. The option of cashless transaction was provided at most customer touch points, in a move towards Digital India. This has helped us to travel an extra mile to support a well-intentioned bold reform. Managed supply disruption with stakeholder support Two of our vendors’ supplies were disrupted during the year due to unfortunate fire incidents at their plants. This compounded the challenge of serving the pending customer orders for several models. To successfully mitigate any adverse impact, we braced ourselves for an agile response. Key personnel were deployed to support the affected vendors, cross-functional teams were formed to coordinate, monitor and communicate the ground reality to the concerned stakeholders. The bi-annual maintenance schedule was preponed and production plans were suitably altered to match demand. This resulted in higher capacity utilisation. While the effective crisis management, with full-fledged support from all relevant stakeholders, helped avoid any untoward scenario, the events helped us gain key learnings. Duly imbibed across the organisation, these learnings will enhance our future preparedness. 04 Maruti Suzuki India Limited Corporate Overview Unconstrained Committed to the next technology challenge Government has come up with plan to rapidly promote the use of Electric Vehicles (EVs) in India. We also believe that electrification is the way forward for India and appreciate the Government’s policy efforts as it’s a major step towards enhancing energy security of the country and making environment cleaner. We will not hesitate in introducing EVs as soon as we understand that the Indian customers are ready to buy them. Meanwhile, we will continue our efforts in enhancing fuel efficiency. Hybrid technology is helping in significantly improving fuel efficiency. Our endeavour is to promote such vehicles, as a step towards electric mobility. As a starting point for developing an ecosystem for electric mobility, Suzuki Motor Corporation, along with Toshiba and Denso is setting up a Li-ion battery plant in India. This would help reduce cost and promote hybrids and EVs. Li-ion 05 Key Figures Key Ratios (%) PAT Margin EBITDA 10 12.2 13.8 15.7 15.5 5.6 6.5 7.6 9.5 FY’13 FY’14 FY’15 FY’16 FY’17 FY’13 FY’14 FY’15 FY’16 FY’17 ROE 11.0 ROCE 14.2 14.1 16.6 19.4 22.2 16.8 18.2 21.6 26.9 30.1 FY’13 FY’14 FY’15 FY’16 FY’17 FY’13 FY’14 FY’15 FY’16 FY’17 5-year Performance Summary (` mn) Particulars FY' 13 FY' 14 FY' 15 FY' 16 FY'17 FY' 17/16 (% Change) Net Sales 426,126 426,448 486,055 564,412 669,094 19 EBITDA 42,768 51,871 67,129 88,844 103,530 17 PBT 29,910 36,585 48,682 74,437 99,413 34 PAT 23,921 27,830 37,112 53,643 73,377 37 79 92 123 178 243 37 185,789 209,780 237,042 298,842 361,711 21 Current Liabilities 68,280 81,381 88,213 110,392 132,313 20 Total Liabilities 81,091 96,217 98,451 120,558 148,222 23 Non-current Assets 157,882 164,083 253,531 340,940 423,834 24 Current Assets 109,248 141,914 81,962 78,460 86,099 10 Total Assets 266,880 305,997 335,493 419,400 509,933 22 43,011 49,036 63,207 84,845 102,847 21 5,693 14,109 31,720 58,518 69,124 18 EPS (`) Net Worth Operating Cash Flow Free Cash Flow Note: FY '16 and FY '17 figures are as per Ind-AS Graphs not to scale 06 Maruti Suzuki India Limited Corporate Overview Key Figures Highlights 2016-17 Delivering across all Parameters #1 47.4% in J.D. Power Customer Satisfaction Index study for the 17th year in a row Market Share in Passenger Vehicles (Increase of 0.6% points) 15.5% 95.1% EBITDA Margin Energy from Cleaner Sources Natural Gas Solar 07 QU A RT E R 0 2 Q UART ER 0 1 Quarterly Highlights Scorched by 200 motorsport enthusiasts as Maruti Suzuki flags off 14th Desert Storm Rally units…and counting 2,000 km Swift remains the preferred car globally Refreshingly Relevant From India to the World India’s beloved Alto is now aero designed with a formidable fan following Maruti Suzuki begins export of its first LCV Super Carry India’s first smart hybrid car Ciaz becomes the largest selling sedan in the A3+ segment; sales crosses one lakh units 1,500,000+ cars exported globally (Sri Lanka, Chile, Philippines, Peru and Bolivia emerged as top markets) 08 5,000,000 Maruti Suzuki India Limited 3 Million Enrolment for driving training to fleet and truck drivers and Road Safety Knowledge Centres crosses a historic landmark National launch of LCV Super Carry Strong body. Turbocharged diesel engine. High fuel efficiency Corporate Overview Q UART ER 0 3 Quarterly Highlights Baleno sets hearts afire 100,000 cars sold Forbes India Leadership Awards (FILA 2016) bestowed the ‘Best CEO – Multinational Company’ award on Kenichi Ayukawa, MD & CEO, for adaptability to change, vision for India, strategic approach and innovative thinking Vitara Brezza Innovative styling, spacious interiors, class-leading features, safety and fuel efficiency steal the show # becomes Indian Car of the Year 2017. Emerges as India’s top 10 selling models (83,000+ cars sold). Class-leading features. Future-ready safety. Outstanding fuel efficiency CII-ITC Sustainability Award Q U A RT E R 0 4 recognises Maruti Suzuki’s contribution to road safety, youth skilling and employability, along with integrated approach to water, sanitation and rural education Start of Production from SMG, Gujarat #IGNIS Hall of Fame Award was conferred upon R. C. Bhargava, Chairman, at the CNBC-TV18 India Business Leader Awards 200th Showroom Inaugurated India’s fastest growing auto retail channel NEXA sold 185,000+ vehicles since inception Baleno RS combines power and design to usher in a new performance segment India gets its first premium urban compact vehicle for millennials 09 Sustainability Highlights Product Safety & Emissions 696,756 tonnes saved since 2006 due to alternative clean & fuel-efficient technologies Total Effective Control Technology increasing fuel efficiency & passenger safety 20% TECT Based Platforms in New Models weighted average IMPROVEMENT since 2005 for entire fleet Baleno RS & Ignis Green Procurement 87% LOCAL TIER-I SUPPLIERS 100 km located within radius of operating facilities 10 Maruti Suzuki India Limited 100% SUPPLIERS HAVE SIGNED Green Procurement Guidelines meeting European Union’s End-of-Life Vehicle Standards for auto parts and components Corporate Overview Sustainability Highlights Resource Efficiency Zero Groundwater extraction at Gurugram plant Initiative to protect scarce groundwater resources 0.12 J energy saved per vehicle manufactured 200 litres water saved per vehicle manufactured 95% M A N U FA C T U R I N G water demand cut by ENERGY FOR manufacturing sourced from Natural Gas 81,032 m 3 Solar 86% Supplier Plants ISO 14001 certified; adopting ENVIRONMENTALLYCONSCIOUS PRACTICES in supply chain 11 Social Development CSR in three thematic areas Community Development SETTING UP FIRST Japan-India Institute for Manufacturing I N G U J A R AT Skill Enhancement Road Safety 403 Initiative under aegis of inter-governmental agreement to create skilled manpower for manufacturing in Maruti Driving Schools 6 Institutes of Driving Training & Research promoting quality driving training in India 141 Industrial Training Institutes supported across India India 24 villages around facilities adopted for community development IN AREAS OF providing quality vocational training in automobile and other trades 12 Maruti Suzuki India Limited Education Water, Sanitation Infrastructure Corporate Overview Sustainability Highlights Conducive Work Environment State-of-the-art Maruti Suzuki Training Academy 100% OF REGULAR WORKFORCE represented by recognised trade unions Regular management-worker interactions Skill development centre for employees of company and business partners Governance Wellinstitutionalised Risk Management System ROBUST Corporate Governance System compliant with legal requirements Board of and Directors Whistle Blower & Internal Complaints with diversified skill sets adding value to resolution mechanisms decision-making for sustained growth 13 Product Portfolio Baleno Dzire Vitara Brezza WagonR Alto 800 Ertiga Omni 14 Ciaz Maruti Suzuki India Limited Eeco Corporate Overview Product Portfolio S-Cross Ignis Ertiga Swift Alto K10 Celerio Gypsy Super Carry* *Super Carry is sold through Commercial Channel 15 Message from the Chairman of experience and knowledge would be of immense benefit to the Company. The last year saw some new and difficult challenges, and also created new opportunities for us. The Company continued to gain the trust of our valued customers and this was reflected in the performance data that you have before you. Our net profits increased by 37%. This, along with the fact that Suzuki Japan is financing new capacity expansion in Gujarat, enabled your Company to increase the dividend from ` 35 per share to ` 75 per share. 2017 is in many ways an important year for your Company. The implementation of the GST started from the 1st of July and I expect it to be a game changer for Indian industry and the economy. Over the past decades, the Indian economy had increasingly become inconsistent with a modern industrial and competitive country. The various reforms and initiatives taken by the Government in the last three years are driving the country towards becoming an attractive place to establish manufacturing activities, and do business. As ‘invisible money’ disappears, transparency and objectivity in decision-making will increase. Your Company has always been a strong adherent of complying strictly with all laws and rules, and ethical conduct has been our watchword. We welcome what is happening as it is good for India, and for your Company. It gives me great pleasure to reach you through this Annual Report. I look forward to these opportunities as important milestones in our joint journey to create a world-class company. We suffered a grievous loss when Mr. Amal Ganguli passed away in May this year. He had joined our Board in July 2003 and was the Audit Committee Chairman since then. His depth of knowledge, wisdom and commitment to the Company was a source of huge strength to the entire Board and we will miss him greatly. Mr. Brar has replaced him as Chairman of the Audit Committee. I would also like to introduce Mrs. Renu Sud Karnad who has joined our Board and comes up for election. She is the Managing Director of HDFC, one of the leading Indian companies. Her wealth 16 Maruti Suzuki India Limited This year also marks 35 years of the entry of Suzuki Japan into car manufacturing in India, and Maruti becoming a joint venture. The various agreements between the Government of India, and Suzuki Japan were signed in October 1982. In this comparatively short time, the Indian car and component industry has been transformed in a manner that was never imagined by anyone at that time. Your Company, with the support of Suzuki and the Government, and all employees and associates, has introduced several new concepts and practices into manufacturing industry, that resulted in global automobile manufacturers being attracted to India. Our experiences now provide learnings for new Japanese investments in India. This journey has not been smooth or easy. The initial decade was a period when serious shortages of foreign currency made imports extremely hard, and created numerous problems. The shortages of all commodities, the license restrictions, the reservation policy for small industries, infrastructure limitations, the absence of technology in the component sector, and the initial disbelief in the future of Maruti, were all obstacles that had to be overcome. The employees of your Company, with unflinching determination and resolve overcame all challenges, and this spirit, even today, enables them to meet whatever difficulty comes in the way. They are the real heroes. Corporate Overview Message from the Chairman The next challenge came when, despite the success and performance of the Company, the Government appeared to lose trust in Suzuki Japan. The various events during 1995 to 1997 saw the Company being unable to make requisite investments, bring in new technology and make progress. Arbitration proceedings started between the Government and Suzuki Japan. Fortunately, in 1998 an out of court settlement was reached, and the Company quickly revived. The effects of a politically motivated strike were overcome. In 2003 the Company was listed, though the issue price of ` 125 was considered high by many knowledgeable investors. The financial crisis of 2008 was met without any severe repercussions. The oil crisis and the Government’s policy regarding diesel and petrol caused the next crisis in our operations. The sale of petrol cars dropped drastically. We did not have adequate diesel engine technology, or capacity to manufacture diesel engines. Our marketing division found numerous innovative ways to increase sales. New segments for sale of petrol cars were identified. A special effort was made to develop sales in the smaller towns and villages. Rural sales grew rapidly, and today 33% of all sales come from these areas. The challenge of adversity resulted in productive innovation. acquisition of land for establishing such outlets is progressing well and this year 400-500 sites will be bought for leasing to potential dealers. The success of the NEXA channel has not only created a new class of customers for us, but has also enhanced the image of Maruti. The lessons from NEXA will now be used to upgrade the other channels. New technologies are going to be enormously important in the years ahead. Failure to keep up to technological change can have severe consequences for any Company. In India, we have to deal with issues of energy security, environmental protection and safety. The aspirations of the young, technologically savvy customers have to be met. Fortunately, our parent is fully aware of these needs. You are aware of the agreement between Suzuki Japan and Toyota Japan to create a partnership to deal with all these issues. Toyota is the global leader in the number of patents held for hybrid and EV technology. I believe that this agreement, which may reach finalisation in a short time, will be of enormous benefit for the future of your Company. The events at the Manesar plant during 2012 were totally unexpected, and really had no justification. It was a huge challenge to restore normalcy and confidence in all. The Managing Director and his team took the initiative in doing this. Numerous changes were made, and the system of communication with the workers was re-visited and strengthened. I am happy to say that the results speak for the determination of our employees to not let such a happening demotivate them in any manner. The Government has announced its programme to rapidly promote the use of EVs in India. It is a very laudable policy, since it would greatly enhance our energy security, and over time lead to a cleaner environment. Your Company would not hold back in introducing EVs as soon as we determine that the customers are ready to buy them. Meanwhile, efforts must continue to be made to enhance fuel efficiency. Hybrid technology is already resulting in significant improvements in fue...
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