Covid-19 impact: Maruti Suzuki's price realisation at 7-quarter low

Analysts said this played a role in the about 100-basis point decline in Maruti’s operating profit on a YoY basis, despite benign raw material and labour cost
Indians’ preference for smaller and low-priced cars in the pandemic-hit economic environment is affecting Maruti Suzuki’s price realisation, or average selling price (ASP) per vehicle. 

The carmaker’s price realisation was down 5.6 per cent YoY to around Rs 4,50,000 per vehicle during June-September, the lowest in the last seven quarters. During same period in 2019, its ASP was about Rs 4,77,000.

There has been a sharp recovery in Maruti’s sales volumes in recent months, but the demand is largely for cheaper models. This created a wedge between sales volumes and growth in net sales (revenues net of indirect taxes from vehicle sales) in the second quarter. Maruti shipped 16.2 per cent more vehicles during Q2FY21 compared to Q2FY20, but net sales were up only 9.6 per cent to Rs 17,689 crore.

“The demand has shifted towards functionality buying as compared to aspirational buying,” said Naveen Dubey, an auto analyst at Narnolia Securities.

Analysts said this played a role in the about 100-basis point decline in Maruti’s operating profit on a YoY basis, despite benign raw material and labour cost. Overall raw material cost was up just 5.9 per cent YoY, while raw material cost per vehicle sold was down 8.9 per cent to Rs 2,25,000 from Rs 2,47,000 a year ago. 

This compensated for lower ASP and allowed the company to report an operating margin of 13.1 per cent in Q2FY21 as against 14.1 per cent a year ago. Sales contribution from the top 10 cities also came down to 31.4 per cent in H1FY21 from 36 per cent in FY20. This, analysts said, could have impacted the sales of top models.

The firm attributed the decline in the ASP to its exit from the diesel segment in April, besides a higher contribution of entry-level cars to its total portfolio. It sold close to 257,000 diesel cars in Q2FY20. Diesel cars were dearer than petrol cars by at least Rs 100,000, translating into a 15-20 per cent higher ASP compared to a petrol-powered car of similar specifications. Diesel cars accounted for 20 per cent of overall sales last fiscal. 

But realisation on gasoline-powered models saw an increase of 5 per cent YoY due to cost increase owing to the transition to BS-VI emission norms, said Shashank Srivastava, executive director (sales and marketing).

Srivastava doesn’t rule out downtrading by car buyers. “While the absolute demand is not drying up, people are choosing models from the lower segment.” An indication of the same is the growing share of first-time buyers. The number of such buyers as a percentage in Maruti’s total sales has gone up to 48 per cent, from 43.4 per cent last year.

“Of around 500 basis points (bps) drop in the ASP seen in Q2, a 300 bps was due to the absence of diesel and the remaining was dragged down because of people buying cheaper cars,” said an analyst at a brokerage. One basis point is one-hundredth of a per cent. “Once the economy revives, the replacement buyers will be back in the market and sales of pricier models will pick up again,” the analyst said, adding this was a one-time effect.

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