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Home » Auto » Slow sales, workers strike to dent Maruti’s Q1 earnings

Slow sales, workers strike to dent Maruti’s Q1 earnings

Maruti Suzuki will report first quarter earnings next week amid an environment of expensive loans and high fuel prices, which have dented sales volumes for automobile makers in general. The sales slowdown and high raw material costs, add to that the workers strike at its Manesar plant, will dent India’s top passenger car maker’s net profit by up to 20% from a year ago.

The company’s net sales are expected to decline 1-3% year-on-year in April-June with operating margins declining by 1-1.5%.

The sequential drop will be much sharper. Net profit is expected to decline 30-40% on a 20-30% decline in sales.

Key raw materials such as steel, aluminum, and rubber rose 6%, 18%, 1% and 38% on an average in the first quarter, forcing companies to raise vehicle prices.

Maruti Suzuki too raised prices by 1% in April, but that would be offset by higher discounts that the company is offering on some models to spur demand. So price realization is likely to remain flat sequentially, says Motilal Oswal.

The appreciation in Japanese yen will also add to margin pressures, says brokerage Prabhudas Liladher.

Maruti Suzuki’s total sales volumes fell 0.6% to around 2.82 lakh units in April-June. While domestic sales for the three-month period rose 3.2% to about 2.51 lakh units, exports were down 23.7% to 30,843 units.

Maruti Suzuki along with rivals like Hyundai have seen their exports, especially to Europe, slide over the last one year after the governments there stopped the scrappage incentive scheme, which offered incentives to dump old cars in exchange for new fuel efficient ones.

Maruti’s sales fell almost 9% in June. Sales of its SX4 Swift Dzire sedans tumbled 60% as there was no production at the Manesar plant for 10.5 days due to the strike. It had also taken the annual maintenance shutdown at its Gurgaon during the month.

Analysts say the company’s guidance for the rest of the year and policy with respect to hedging on yen exposure will be key points to watch on Tuesday.

Friday Maruti Suzuki shares closed up 0.5% at Rs 1,161.60 on NSE.

Maruti Suzuki’s shares have fallen 8.6% since April, much sharper than the BSE’s Auto index, which is down 4.6% over the same period, reflecting the weaker sentiments among investors.

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