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BL Research Bureau

The festival season has brought no relief to Maruti Suzuki from the slump in its sales volumes witnessed over the past few months. The company has seen an 8 per cent fall in domestic sales volumes during October.

After showing promising growth in April and May this year, growth in domestic sales volumes took a turn for the worse. It remained flat year-on-year in June and July and fell by a sharp 10 per cent in August. A 3 per cent growth in September raised some hopes of a revival but that too has been dashed.

A key contributor to this pause is the company’s bread-and-butter compact segment (Alto, Wagon R, Estilo and Swift), which has shown a declining trend during this period. For October, growth in this segment fell by about 8 per cent. Apart from the high interest rate regime, model fatigue and increased competition from models like the i10 and Chevy Spark seem to be the predominant reasons for waning interest in Maruti’s compact cars.

Financial year 2008-09 has so far been challenging for Maruti — A drop in profits since the March ’08 quarter due to changed method of depreciation, a spike in input costs taking a toll on the operating margins and slowing volumes have beaten down the company. But it has managed to show a 13 per cent growth in net sales in the first half (April-September ’08).

Robust sales and improved realisations from higher-end models such as the SX4 and Dzire, and price increases effected to pass on the rise in raw material costs to customers have aided growth.

Going forward, exports will receive a boost from the launch of the A-Star in November. Given its high level of localisation and the prevailing conducive environment for exports, this launch may further improve realisations in the next few quarters. Also, any fall in interest rates may trigger the much needed volume growth.

Although the company has turned the spotlight on “value engineering” initiatives to save costs, margins may be under pressure in the near term, as the company does not expect steel price benefits to come in the second half.

More Stories on : Stocks | Outlook | Cars | Maruti Udyog Ltd

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