Seth said the decline in realisation was partially due to high discounts and also because of the reduction in diesel mix.
Maruti Suzuki on Tuesday reported a 5% year-on-year (y-o-y) increase in its net profit at Rs 1,565 crore for the quarter ended December 2019 as marginal recovery in volume growth, lower tax expenses and fall in commodity prices, were offset by higher sales promotion expenses, depreciation and lower other income. The profits were slightly below Bloomberg consensus estimates of Rs 1,587 crore.
Total revenue from operations rose 5.3% y-o-y to Rs 20,707 crore on account of a 2% y-o-y growth in volumes at 4,37,361 units during the October-December quarter and Rs 300 crore increase in other operating income to \Rs 1,058 crore. Volumes rose after five consecutive quarters of decline. Shares of Maruti Suzuki fell 2.05% to close at Rs 6,996.95 at the BSE. The result was announced during the market hours.
On the operating front, Ebitda (earnings before interest, tax, depreciation and amortisation) rose 8.9% y-o-y to Rs 2,102 crore while margins rose by a marginal 30 basis points to 10.1% as raw material costs declined significantly but was partially offset by discounts which had touched the highest-ever levels. Average discounts during the quarter was around Rs 33,000 as demand remained subdued and the company had to liquidate the year-end BS-IV stocks before new emission norms (BS-VI) come into force from April 2020. The cost of raw material as a percentage of net sales declined by a massive 14% y-o-y in Q3FY20.
The company’s Ebitda margins have been falling for the past four quarters. Tax expenses fell 22.6% y-o-y to Rs 441 crore. Ajay Seth, CFO at Maruti Suzuki said margins were impacted due to high discounts on almost every model. “If the discounts would have been normal, the margins would have expanded by another around 150 basis points,” Seth told analysts at the post results conference call. Realisations in Q3FY20 declined 5.7% to Rs 4.7 lakh despite price hikes taken by the company on account of introduction of new safety regulations and migration of the petrol portfolio to BS-VI. Analysts at Kotak Institutional Equities had expected revenues to increase by 16% y-o-y led by a 9% increase average selling price.
Seth said the decline in realisation was partially due to high discounts and also because of the reduction in diesel mix. “For us, diesel sales is going down as a percentage of total volumes which also affected the realisations,” Seth said. As the country’s largest car maker has decided to stop selling diesel cars from April 2020, analysts expect potential loss in volumes going forward. “In a scenario that diesel volumes get impacted by 20-30% for sedan and SUV models as Maruti exits the segment, we estimate it would lead to a potential loss of 4% of FY21 volumes,” analysts at Nomura said. “OEMs like Hyundai and Ford, which continue with smaller diesel engines may gain share at the expense of Maruti,” they wrote.
Analysts at Bofa Securities said the withdrawal from diesel segment, which accounts for 25% of Maruti’s volumes and higher competition are near-term risks. “We expect new launches in collaboration with Toyota to offset some of these concerns,” they said. Maruti on Monday announced a price hike of upto 4.7% on select models, citing rise in input costs.
Without giving a forward looking statement, Shashank Srivastava, executive director, marketing and sales at Maruti said he expects a 3-5% increase in car sales next fiscal (FY21). “This is what many economists have estimated,” Srivastava told analysts on Tuesday.