Led by the sharpest volume fall in recent quarters, India’s largest passenger vehicle maker posted a 14 per cent year-on-year dip in revenues in the June quarter. Muted consumer sentiment, higher prices, and liquidity issues meant that Maruti Suzuki
sold 18 per cent fewer vehicles over the year-ago quarter.
The falling volume trend is expected to continue in the near term with the management stressing that market sentiment remains weak and that there has been no demand traction. Delayed monsoon has affected demand in the rural market; higher funding and running costs are being reflected in falling walk-ins and enquiries.
While revenues did not fall as much as volumes due to the price increase for the BSVI models, declining volumes were reflected on the operating leverage of the company. Operating profit margins halved to about 6 per cent from the year-ago levels. Though raw material costs were down on an absolute basis, as a percentage of revenues, they were up 410 basis points to 75.1 per cent.
Higher marketing expenses to push volumes have been also weighing on costs, rising 150 basis points over the year-ago quarter. The company posted an operating profit of Rs 1,129 crore. This would have reflected more on the bottom line but for the higher other income, which went up by over three times to Rs 836 crore. Net profit at Rs 1,435 crore was down 27 per cent y-o-y.
While the company is cautious about the near-term outlook, analysts believe that it is better placed than the competition. Most of its top-selling models such as Alto, Baleno, Swift, Dzire, and WagonR are already BSVI compliant. Further, the consumer shift to petrol-driven vehicles will benefit the company the most as over 78 per cent of its portfolio is petrol based. This is 600 basis points higher than the year-ago number. Given the higher cost of transition for diesel-run vehicles, Maruti’s competitors could face an uphill task in passing the higher cost to consumers.
While the stock is down 38 per cent over the past year, investors should await an improvement on the volume front before entering the stock.