It appears that the Indian automobile industry will most likely be stuck in the slow lane vis-à-vis volume and earnings growth for some time to come, as was evident from Maruti Suzuki India’s financial performance for the quarter ended December 31, 2018, which the company declared on Friday.
Maruti Suzuki, India’s largest carmaker by volume, posted a steep 17.2% year-on-year decline in net profit for the October-December 2018 quarter to ₹1,489 crore, singed by higher costs and the inability to pass it on to consumers in the wake of subdued demand. The company’s net sales, in the same period, rose a mere 2% in the same period to ₹19,668 crore. On a sequential basis, net profit fell 33.5% and net sales declined 12.3%.
The volume of car sales reported by the New Delhi-based company was a dampener as well. On a year-on-year basis volume fell 0.4% to 4.29 lakh units, while it fell 10.6% from the preceding July-September 2018 quarter.
A post-earnings research note by analyst Mitul Shah of Reliance Securities called Maruti Suzuki’s financial performance for the third quarter of FY2018-19 “highly disappointing.”
“Maruti Suzuki delivered highly disappointing 3QFY19 performance, impacted by cost escalation across the parameters and higher discounting. Competitive intensity has restricted the company from passing on the cost escalation and dragged (down) the net profit of the company, despite higher non-operating income,” says Shah’s note.
The Reliance Securities report noted that the company’s reported year-on-year revenue growth was 0.7% lower than its own estimate of ₹19,800 crore. Revenue growth was a function of higher prices, even as volumes declined, indicating weak underlying demand for passenger vehicles.
“We seek clarity from the management on cost structure and cost escalation pass-on, as margin contraction is much higher than expectation. However, we expect increase in first-time buyers from rural markets and volume improvement on the back of the success of new launches (new WagonR),” says the report. “Company's strong product pipe line, success of new launches, leadership and strong management capability would benefit company's profitability going forward.”
Maruti Suzuki’s share price plunged 7.4% on the BSE on Friday to ₹6,516.35 apiece. The bourse’s benchmark index, S&P BSE Sensex declined 0.47% on the same day to end at 36,025.54 points. In intraday trade on Friday, Maruti Suzuki’s stock touched 52-week low of ₹6,420 per share, before regaining some ground before market close.
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