Maruti Suzuki’s strong operating performance and double digit margins (11.4 per cent against 7.3 per cent a year ago) in the quarter ended June masks the bleak scenario on the volume front. The performance, hence, may be difficult to sustain in the quarters to come on three counts.

Diesel losing sheen

One, with diesel prices being linked to the market in stages, consumer preference for diesel vehicles has begun wearing off.

The share of diesel vehicles, which was at 37 per cent of the total vehicles sold for Maruti in 2012-13, has dropped to 34 per cent in the first quarter of 2013-14. Demand is expected to cool off further.

With diesel vehicles having higher price points and better margins, Maruti could take a knock on this front.

More so as discounts, which were hitherto being offered only on petrol cars, were extended to diesel cars since June.

Average discounts in the first quarter stood at Rs 13,430 compared with Rs 11,450 a year ago. The company has indicated that it could go up further.

Second, the Ertiga may not hold fort for the company as much as it did in 2012-13. Given the waning attraction of diesel vehicles and the high base of last year, the runaway demand for utility vehicles witnessed in 2012-13 has already softened in the first three months of this fiscal.

Maruti sold about 23 per cent lower Gypsys and Ertigas in April-June 2013 compared with the same period last year. Besides, the company does not have any immediate launches planned to keep customer interest going.

Finally, with the third plant in Manesar expected to become operational by September, it may have to brace for higher fixed costs, considering the weak outlook for volumes.

While rural sales are growing at about 20 per cent for the company, what may help volumes is a further surge as a result of the good monsoons.

vardhini.c@thehindu.co.in

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