Suzuki just slashed its operating income forecast by 40% citing slower sales in India
- The Japanese car making giant has been hit by severe slowdown in car sales in India.
- Suzuki shares have lost over a sixth of its share value this year due to the fear of depleting earnings.
- Maruti accounts for over 52% of Suzuki’s global sale volumes.
The shares of Maruti fell over 2% immediately after the announcement from Suzuki. "The Company hereby revises the consolidated business forecast due to decrease in Japan production in the course of restructuring final inspection scheme, slowdown in Indian automobile market, and exchange rate fluctuations," Suzuki said in a filing with the stock exchanges in Tokyo.
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Brokerage house CLSA has maintained a 'buy' rating on Maruti Suzuki with a target price of ₹7,950 over the next 12 months hoping that the new models will lure some buyers who are still on the fence.
The slowdown in car sales is not unique to Maruti. Car sales in India fell 20.5% in September compared to a year earlier. Aside from the economic slump in India, car buyers have shied away from showrooms expecting duty cuts and lower prices as well as fearing a loss of value for their new cars when the new emission norms kick in next year.
This has been a debilitating blow for Suzuki for whom India makes for over half of all its global sale volumes. “In view of the current sales environment, we lower our estimates for India domestic sales to +0.2% for FY2019 (from +5.4%) and +3.7% for FY2020 (+6.4%),” JPMorgan said in a report in June.
The steady decline in car sales in India has been the worst in 18 years, according to the Society of Indian Automobile Manufacturers (SIAM). In September 2001, after the tech bubble burst plunging the global economy into a temporary crisis, the sales had dropped down by 21.91%.
In rural India, the decline in demand for cars is attributed to a protracted farm crisis, made worse by the ongoing water crisis and deficient monsoon in many parts. This has had a significant impact on Maruti, which has a deeper reach and penetration outside the big cities too.
People in India increasingly prefer cab aggregators like Ola and Uber, or even second hand cars to new ones.
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