Post September quarter results, analysts at Jefferies had noted margin pressures were likely to continue in the second half of the year due to an adverse impact from foreign exchange transactions as the effect through vendors comes with a quarter lag.
Maruti Suzuki on Friday reported a 17.21% year-on-year (y-o-y) decline in its net profit to `1,489.3 crore for the three months to December 2018, way below the Bloomberg consensus estimate of `1,731.9 crore. This was despite a near four-fold jump in other income to `917.3 crore and a big drop in tax outflows. At 9.8%, the car maker’s operating margins skidded to a five-year low. The previous low was 10.6% in Q4FY14.
The country’s biggest car maker attributed the subdued numbers to low volume growth — down 0.6 % y-o-y — the increase in prices of raw materials — up 370 bps y-o-y —, adverse foreign exchange rates and higher other expenses.
The Maruti stock fell 8.2% in Friday afternoon trade to `6,464.70 on the BSE before closing the session at `6,516.35, down 7.40%.
Revenue from operations in Q3FY19 rose just 2% y-o-y to `19,668.3 crore. While volumes fell, the average realisations per car increased by 2.6% to `458,850 compared to `4,47,290 in Q3FY18 and `4.45 lakh in Q2FY19. In January, Maruti had announced a small price hike across models.
Operating profit margins contracted for the fourth consecutive quarter by 500 basis points y-o-y to 9.8%. Consequently, the firm’s Ebitda (earnings before interest, taxes, depreciation and amortisation) dropped by 36.43% y-o-y to `1,931.1 crore. The operating margin in Q3 FY18 was 15.8% while in the July-September 2018 quarter, the margin was 15.3%. Post September quarter results, analysts at Jefferies had noted margin pressures were likely to continue in the second half of the year due to an adverse impact from foreign exchange transactions as the effect through vendors comes with a quarter lag.
“In addition, higher discounting is also likely, given the weakness in demand and competitive pressures,” they wrote.
Adverse commodity prices, foreign exchange rates, higher marketing & sales expenditure and higher costs in resources and capacities which were earlier planned to enable a higher estimated growth impacted profitability, the company said in a statement.
Maruti Suzuki chairman RC Bhargava had earlier said demand for cars would worsen in the second half of FY19 due to increase in international crude prices and third party premium.
Maruti Suzuki said in a statement that the results of this quarter have to be viewed in the context of particularly weak market conditions. “While SIAM had forecast a passenger vehicle domestic market growth of 8-10% for the year, industry could grow by 4.4% in the first three quarters of the year.”
Maruti Suzuki, Suzuki’s most profitable subsidiary, with a market share of around 50.85%, reported a volume increase of 24% y-o-y in the April-June quarter. However, during the July-September quarter, the volume growth slowed to around 1.5% y-o-y to 4.84 lakh units due to rising insurance premiums, a hike in fuel prices, floods in Kerala where the company sells 8-10% of its output and costlier finance options.
Volumes in the compact segment, which constitutes almost half the company’s volumes and includes top seller Baleno, grew by just 4.1%, while the utility vehicle volumes declined by 1.9% during the quarter.
Maruti plans to roll out its first electric vehicle (EV) in 2020. In the same year, it plans to bring out its first lithium-ion battery from the new battery manufacturing facility that was set up in a joint venture with Toshiba and Denso. Suzuki has completed construction of the second plant in Gujarat and started production of the Maruti’s Swift hatchback earlier this month.
The two plants in Gujarat have an annual production capability of 2,50,000 units each, which makes Suzuki Motor Gujarat’s total capacity increase to 5,00,000 units. Together with Maruti Suzuki’s production ability of 15 lakh units, Suzuki’s production capability of automobiles in India will now be 20 lakh units. The company also has a third plant is Gujarat, which is scheduled to start operations in 2020.