Maruti is getting bigger in a shrinking market
- Maruti Suzuki’s quarterly sales contracted 81% in the June quarter, while compared to the year earlier.
- According to various analysts reports, Maruti is projected to see a profit dip of nearly 96%.
- However, Maruti’s higher exposure to gasoline vehicles will benefit it in the near future as the rising fuel prices will lead to anti-dieselization.
India’s largest carmaker Maruti Suzuki wasn’t immune to this slowdown either — and saw its quarterly sales contract 81%, while compared to the year earlier. Although the sales of motorcycles and scooters weren’t hit quite hard in comparison to cars, as the COVID brought job losses and furlough made people cut down on their discretionary needs.
And, according to Rajan Wadhera, president of SIAM, it will take as many as four years for India’s automobile industry to reach volumes last seen in the year to March 2018, and even that is an optimistic estimate.
|Maruti||April to June 2020||April to June 2019||Growth %|
According to BP Wealth, a broking firm, the first quarter is expected to be a washout quarter with a decline in performance. Despite that Maruti’s sales of entry-level cars ramped up in May as the lockdown was lifted, but it was still significantly lower as compared to the sales in the first quarter of the previous year.
According to various analysts reports, Maruti is projected to see a profit dip of nearly 96%.
|Brokerage||Q1 Profit growth estimate %|
Anti-dieselization to steer the company out of the tough times
The outlook for the auto industry is pretty bleak as of now, not just in India but across the world. The credit rating agency, Moody’s earlier in May said it expects the global auto sales to fall 20% in 2020.
Despite all the data points, HDFC expects Maruti to benefit from its entry-level portfolio and 40% of sales that come from rural areas. Maruti’s higher exposure to gasoline vehicles will also benefit it in the near future as the rising fuel prices will lead to anti-dieselization. With parity between the prices of petrol and diesel, the economic logic for buying diesel cars is now forgone. People will now be more attracted towards CNG and LPG operated cars in order to cut down on the fuel prices.
Shashank Srivastava, Executive Director (Marketing & Sales), Maruti Suzuki India told PTI that the company aims to sell around 1.4 to1.5 lakh CNG units this fiscal as compared with 1.07 lakh units in 2019-20
And, that is the reason the stock has run up 45.16% since March 31 until now.
The COVID crisis hit at a time when the Indian auto industry was already dealing with BSVI transition. According to Srivastava, 80% of cars were brought through financing after the lockdown was lifted. The company also rolled out financing arrangements with more flexibility on tenure, EMIs and cash down requirements to help consumers.
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