Maruti Suzuki’s profit drop for the fourth consecutive quarter to its lowest in 3.5 years, as the slowdown in the automobile sector got worse and the nation’s largest carmaker had to spend more to lure buyers, as per ET reports.
At Rs 1,435.50 crore, the net profit of Maruti Suzuki for the April-June quarter plunges 27% from a year earlier, but topped the Rs 1,340 crore average estimate of analysts tracked by Bloomberg.
Maruti Suzuki’s shares rose 0.78% to close at Rs 5,805.55 on the BSE Friday, outpacing the benchmark Sensex index that rose 0.14%.
Revenue at the local unit of Maruti Suzuki dropped more than 14% to Rs 18,735.2 crore, the steepest decline since December 2011, even as vehicle sales slid 18%.
“We don’t see any positive signal in the marketplace that will give a sense of optimism in the future. We will wait and watch,”
senior executive director RS Kalsi told analysts.
The automaker said it would limit stocks at dealerships to equivalent of 30 days’ sales despite the upcoming festive season, and be watchful of the inventory as the market environment remained unfavourable.
Usually, automakers increase vehicle dispatches to dealerships ahead of the festival season, which is also typically the peak sales period.
#1QWithCNBCTV18 | The auto sector is going through a major slowdown. So will Bajaj Auto & Maruti Suzuki's Q1 earnings take a beating? @_soniashenoy & @sonalbhutra tell you what is expected from the two big boys pic.twitter.com/tYQULFpPd8— CNBC-TV18 News (@CNBCTV18News) July 26, 2019
The statement from the market leader shows it is cautious this time, and also underlines the severity of the decline in the passenger vehicle market, where sales have fallen every month in the past one year, expect for flattish numbers in October.
“There is a big drop in walk-in enquiries. We are putting a lot of effort to generate enquiries and have multiplied field activities. The delayed and deficient rainfall has also impacted rural sales, which too have declined by 17%,” Kalsi said.
“Unnecessarily loading inventory in these difficult times does not make sense,” the executive added.
Maruti said higher sales promotional expenses, depreciation and low capacity utilisation hurt its financial performance. These were partly offset by lower advertisement expenses, cost reduction efforts as well as favourable exchange movement and commodity prices.
The company told analysts that it expected the demand environment to be very weak in the coming months. As a result, it forecast discounts to stay at elevated levels to push sales.
Kalsi also said, “Our production system is flexible, we have enough capacity, if there is an increase in demand, we will react.”
The company said all its models would transition to Bharat Stage VI emission standards by the end of 2019.
In a bid to reduce the risk from currency fluctuations, Maruti Suzuki has decided to fully pay royalties to parent Suzuki Motor in rupee terms.
At present, 45% of the royalties is paid in rupee terms, or without adjusting to exchange rates. By 2021-2022, this would become 100%, it told analysts.
By: Abhinav Ranjan, Editorial Desk, DKODING Media