MUMBAI (Bloomberg) -- Maruti Suzuki India Ltd., the maker of half the cars sold in the country, may cut partsmakers unable to pay for expansion as an industrywide components shortage damps auto production in Asia's third-largest vehicle market.
“Without strong balance sheets and resources, it will be impossible for partsmakers to expand at the same pace as Maruti,” Chairman R.C. Bhargava said in an Aug. 23 interview at his home in Noida, near New Delhi. “We have told suppliers that either they ensure that they strengthen their balance sheets or face the risk of being dropped.”
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 slows vehicle production. Local components makers have struggled to expand because of debt levels that are twice as high as Asian suppliers' levels.
“The inability of even one or two suppliers to deliver parts on time affects not just Maruti but the entire supply chain,” said Vaishali Jajoo, an analyst with Mumbai-based Angel Broking. “Maruti needs to work with suppliers to resolve this issue.”
The carmaker fell by as much as 0.7 percent to 1,224.5 rupees in Mumbai trading Wednesday. The stock has dropped 21 percent this year, compared with a 4.6 percent gain in the benchmark Bombay Stock Exchange's Sensitive Index, or Sensex.
Maruti will cooperate with partsmakers, without offering any direct financial assistance, Bhargava said. He didn't identify any suppliers that may be cut because of a lack of capital. “We hope it doesn't come to that,” he said.
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, Jajoo said.
Maruti, which had waiting lists of as much as a month for Swift hatchbacks and Dzire compacts, boosted vehicle sales 25 percent in the quarter ending in June. The overall car market has expanded more than 30 percent this year.
Maruti faces increasing competition in India as rising demand encourages overseas automakers including Toyota Motor Corp., Nissan Motor Co. and Volkswagen AG to open plants and add new models in the country.
Maruti intends to introduce at least one new model a year to retain its lead, Bhargava said. The carmaker is also spending 17 billion rupees ($363 million) to boost capacity at a plant in Manesar. The company also has three plants in Gurgaon.
The automaker intends to produce 1.2 million cars in the year to March, Bhargava said. It plans to export 15 percent of production, little changed from last year, because of domestic demand, he said.
“A large exposure to foreign markets brings volatility,” Bhargava said. “When there is sufficient demand in India, why should I sell my cars abroad?”