Maruti Suzuki reports 28% decline in net profit: Company unsure of recovery time

Despite the fall, Maruti's profit was in line with estimates as the effect of lower sales was partially offset by lower operating expenses, cost reduction efforts and reduction in corporate tax rate.

By:Updated: May 14, 2020 10:00:11 AM

The country’s largest passenger vehicle manufacturer, Maruti Suzuki India, which has just started production at one of its plants, is not sure by when the demand for cars will see a recovery. Company chairman RC Bhargava on Wednesday said it would be difficult to predict the recovery timeline as it would take 6-8 months to understand when the recovery would happen. “There are so many uncertainties at the moment that no point speculating by when we will get back to normal to pre-2019-2020 volumes and these relate both on the production side, on the supply side, on demand side, financing, affordability, the whole number of factors will go into it. …car sales cannot happen in big numbers if the GDP is down to 1 or 2%,” Bhargava said. He also refused to give an outlook for the current financial year stating too many uncertainties to predict.

The company on Wednesday reported a 28.1% year-on-year decline in its net profit at Rs 1,292 crore in the January-March quarter due to lower sales volume and higher sales promotion expenses. Despite the fall, Maruti’s profit was in line with estimates as the effect of lower sales was partially offset by lower operating expenses, cost reduction efforts and reduction in corporate tax rate. The carmaker reported lower than estimated sales, which declined by 17.1% y-o-y to Rs 17,186 crore. The company missed estimates on the Ebitda and margin front. Earnings before interest, tax, depreciation and amortisation fell a sharp 31.6% y-o-y to Rs 1,547 crore and margin fell 200 bps to 9% during the quarter. Net profit for the financial year at Rs 5,651 crore was lower by 24.7% while net sales declined 13.7% to Rs 71,690 crore in FY20 compared with previous year. The company sold a total of 15,63,297 vehicles during the year, lower by 16.1% over the same period previous year. The company sold a total of 3,85,025 vehicles during the fourth quarter, lower by 16% over the same period previous year. In the domestic market, the company sold 3,60,428 vehicles, lower by 16% over the same period previous year. Exports were at 24,597 vehicles, lower by 16.9% over the same period previous year.

Expectedly, the first quarter of the new fiscal will be a washout for the automaker, thanks to the nation-wide lockdown in April and May. Bhargava said the company expected 2,000 dealers to gradually open but it would take a little time and, therefore, the sales volume, demand, the enquiries had to be related to the fact that only a small percentage of dealers would be functioning and others would only function for few days in the week.

He added that most of the market enquiries were coming through the digital route, and the company had actually received a little over 5,000 bookings so far, and 2,300 cars were delivered. Also, about 1,900 workshops were functioning but the loads in these have become very low due the ongoing lockdown. “This business will pick up gradually,” he said.

While Bhargava said that the company was not cutting salaries and not laying off people, the added safety protocols would impact the overhead cost of production. However, the company does not intend to pass on this increase to customers as yet. “At the moment the protocols which result in little bit lower productivity and lower output will have an overall impact on increasing overhead cost of production but at least Maruti has no plans of passing this onto the customer at this point of time,” he said. The company has earmarked a capital expenditure of Rs 2,900 crore for FY21. The company recommended a dividend of Rs 60 per share for financial year 2019-20, lower than the Rs 80 per share for financial year 2018-19. Maruti’s shares closed up 1.72% at Rs 5,035.25 on the BSE on Wednesday.

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