News Analysis

Maruti Suzuki Q1: Some cheer amid the gloom

Parvatha Vardhini C BL Research Bureau | Updated on July 30, 2020 Published on July 29, 2020

The logo of Maruti Suzuki India is seen on a glass door at a showroom in New Delhi   -  REUTERS

Maruti’s first quarter results have been a washout with the company recording a loss of ₹249 crore. But there are few trends worth noting.

One, as against the domestic wholesale volumes (sale to dealers) of about 67,000 units recorded in the April–June period, Maruti saw retail volumes (sale to customers) of 1,19,000 units, indicating good pick-up in end demand. Enquiries and bookings are at 85-90 per cent of the pre-Covid levels currently and 80-90 per cent of the dealerships are open.

 

Two, the trend of customer down trading to smaller cars due to factors such as pay-cuts work in favour of the company which is the market leader in small cars. About two-thirds of the current enquires are for small cars, says Maruti. In the recent past, this number was lower — only half the enquiries came for small cars. Besides, about 40 per cent of Maruti’s demand comes from rural India and this could work in its favour too. Variants such as the new S-Cross petrol — slated for launch in the first week of August — hold promise. Maruti has also taken steps to ease borrowing for potential buyers by tying up with entities such as Mahindra Finance, IndusInd Bank and Karur Vysya Bank, providing them with attractive financing options.

While these factors are a silver lining, the company is not in a position to judge if the higher retail demand was only the pent-up demand due to production/ dealership shutdowns in the early part of the June quarter or if the trend will continue. The July vehicle sales numbers which will be out on August 1 might throw some light on this.

Local lockdowns and shortage of manpower continue to impose curbs on production both at the company’s plants as well as that of the suppliers’ and these will remain a wild card in the next few months. To tide over such uncertainties, inventory management and associated costs will play a key role in the near to medium term. The company had 25 days of inventory as of end June.

In what is otherwise going to be a tough year for the auto sector, only concrete signs of a comeback in demand can provide upside for the stock. The Maruti Suzuki stock has already zoomed about 54 per cent from the one-year low it touched in early April this year. It now trades at over 30 times its trailing earnings.

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Published on July 29, 2020
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