Maruti May Drop Cash-Strapped Suppliers on India Parts Shortage

Maruti Suzuki India Ltd. | Automobiles - Passenger Cars | Automobiles | BSE: 532500 | NSE: MARUTI

25 Aug 2010 Evaluate

Maruti, the maker of half the cars sold in the country, may cut parts makers unable to pay for expansion as an industry wide components shortage damps auto production in Asia’s third-largest vehicle market. Without strong balance sheets and resources, it will be impossible for parts makers to expand at the same pace as Maruti, hence they should ensure that they strengthen their balance sheets or face the risk of being dropped, according to its chairman R.C. Bhargava .

The Suzuki Motor Corp. unit and Hyundai Motor Co. are among carmakers to have introduced waiting lists in India as a lack of parts including tires, bumpers and batteries damps vehicle production. Local components makers have struggled to expand because of debt levels that are twice as high as Asian suppliers. The inability of even one or two suppliers to deliver parts on time affects not just Maruti but the entire supply chain.

India’s 133 listed makers of components and tires have an average debt-to-equity ratio of 138 percent, according to data compiled by Bloomberg. The average for the 73 companies in the Bloomberg Asia Pacific Auto Parts & Equipment Index is 58 percent. Many Indian suppliers built up debts by making overseas acquisitions or adding capacity at local plants just before the downturn.

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