The shares of Maruti Suzuki closed about 2 per cent lower on Tuesday in view of disappointing results. While the market expected a higher year-on-year growth in profits, the company clocked only a 5.1 per cent growth to ₹1,564.8 crore. However, considering this in light of the drop in profits in the last few quarters, the return to growth implies that the worst is behind the company. Thanks to the festival season and discounts, volume growth returned, though at a tepid 2 per cent.
A 1.8 per cent increase in average realisations helped sales move up by 3.8 per cent to ₹19,649 crore. However, margin expansion was not on expected lines. While heavy discounting brought in volumes, it affected profitability. Average discount per vehicle during the quarter stood at ₹33,000, compared with ₹24,000 a year ago.
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Secondly, raw material cost as a percentage of sales stood at 76.3 per cent, as against 74 per cent in the same quarter last year. Thus, operating margin came in at 10.1 per cent, only a small improvement over the 9.8 per cent in the December 2018 quarter.
Lower tax expenses helped profits grow better than sales. The company saw a 22 per cent fall in tax expenses during the quarter, thanks to corporate tax rate cuts.
The tax rate for the quarter stood at 22 per cent as against 27.7 per cent a year ago.
Outlook
Maruti is beginning calendar year 2020 on a good note.
With rural incomes expected to look up due to higher crop prices and better rabi sowing and finance availability improving, passenger car sales may gain momentum from now on. The company has introduced BS-VI models for a major part of its portfolio and hence discounting is expected to come down in the current quarter.
Also, considering the rise in price of steel and other precious metals such as palladium and rhodium used in BS-VI vehicles, Maruti has taken a price hike of up to 4.7 per cent across its models from January 27 to partly pass on the escalation.
The only worry is on the company’s decision to discontinue diesel models under BS-VI as of now, especially in popular SUVs such as the Vitara Brezza.
Any loss in market share in this segment in the next few months may hurt the nascent recovery seen in the third quarter.