Maruti Suzuki, the country's largest carmaker, on Thursday posted a surprise 4.6% drop in net profit for the quarter ended March 31. Its net profit in the March quarter (Q4) declined to ₹1,795.6 crore, from ₹1,882.1 crore a year ago due to higher commodity prices, a weaker rupee, industry-wide weak market sentiment, and low demand, among other factors.
This [March] quarter was marked by adverse foreign exchange rates and commodity prices, higher depreciation and higher sales promotion expenses partially offset by cost reduction efforts, the company said in a statement.
For the full financial year, net profit also dropped 2.9%—from ₹7,721.8 crore in FY18 to ₹7,500.6 crore in FY19. “This was a difficult year because of adverse foreign exchange rates and an increase in commodity prices. The overall market was slow and had to be supported by higher sales promotion expenses. This was partially offset by cost reduction efforts,” the automaker said.
Maruti Suzuki chairman R C Bhargava, in his address to the media, said, “This year going forward, we are faced with the fact that over the last three quarters the market has been very soft. Not only for the car sector but the two-wheelers had a bad time, commercial vehicles in the last couple of quarters had a bad time. So, somehow, everything seems to slow down before the general elections.”
During the post-results press conference, Bhargava also said Maruti Suzuki will phase out all diesel cars from its portfolio, with effect from April next year. "From April 1, 2020, we will not be selling diesel cars," he said.
During the March quarter, the company registered net sales, including domestic and exports, of ₹2,073.75 crore, up 0.7% from ₹2,059.43 crore over the same period last year. The company sold a total of 428,863 units in the domestic market. This comprised 421,383 units in the passenger vehicle segment, a decline of 0.4% and 7,480 units of LCV, a growth of 83.6% over the previous year. Exports were at 29,616 units.
“Our domestic sales have grown by 6.1%. This was against our original expectation of getting to double-digit growth. The market has had a downturn after the first quarter. Q1 was excellent but after that, it’s just been going down…it’s not really a growth but a de-growth of 2.9%.” said Bhargava.
He added that this happened despite the increase in sales because the rupee has not been robust against other currencies. “The dollar, the yen, the euro—they all went up. Along with that, commodity prices reversed the trend and they went up. We had some depreciation because of the second line in Suzuki’s Gujarat plant got commissioned in January, leading to a higher depreciation expense,” he said.
“Not only us, but the entire competition was offering large sales promotion discounts and we had to follow suit so that expense went up. While sales revenue did go up by 6%, expenses went up faster. That’s why profits came down by 2.9%,” Bhargava adds.
Bhargava feels that there were some favourable and some unfavourable factors for the company. Some of the “favourable factors”, he pointed out, were the growth of the stock market, the positive monsoon prediction, and Maruti’s strong growth against the competition.
The carmaker also recommended a dividend of ₹80 per share of face value ₹5 for 2018-19, the same as that of last year.
Shares of Maruti Suzuki on Thursday closed 121.40 points, or 1.73%, lower at ₹6,902.95 on the BSE.