Q1 Results: Maruti Suzuki’s Profit Beats Estimates On Higher Other Income

Maruti Suzuki India Ltd.’s profit fell in the June quarter as buyers continued to stay away amid a consumption slowdown. Still, it beat estimates.

Net profit of India’s largest carmaker fell 27 percent year-on-year to Rs 1,436 crore in the April-June period, according to an exchange filing. That compares with the Rs 1,340-crore consensus estimate of analysts tracked by Bloomberg. The profit was aided by a threefold jump in other income at Rs 836 crore.

Revenue declined 12 percent to Rs 19,720 crore in Q1 but was still higher than the Rs 19,070 crore estimate. The company’s sales volumes contracted 18 percent—the worst in at least five quarters. In the quarter ended March 31, Maruti Suzuki had forecast lower sales growth for 2019-20 over the previous year.

India is in the midst of an auto sector slowdown that started around the festive season last year. That forced automakers to lay off workers and shut showrooms across the country. Also, a liquidity crunch triggered by payment defaults at IL&FS companies spilled over to the auto sector as a significant number of purchases are made through vehicle financiers.

This was the fourth quarter of declining auto sales for Maruti Suzuki, with inventory days increasing to a little over a month, Ajay Seth, chief financial officer at the carmaker, said in a post-earnings conference call.

Here are the other key highlights from the call:

• Petrol car sales now account for 78 percent of total car sales.
• Baleno, Swift Dzire and Alto variants are now compliant with BS-VI norms.
• Confident in the fundamental strength of the business.
• Discounts for the first quarter stood at Rs 16,941 crore.

Margins Contract

Maruti Suzuki’s earnings before interest, tax, depreciation and amortisation fell 38 percent to Rs 2,049 crore. Its Ebitda margin contracted to 10.4 percent in Q1 from 14.9 percent a year ago, as expected.

The company, in its note to investors, said the operating margin contracted because of higher expenditure on depreciation, sales promotion and lower capacity utilisation. However, it met analyst estimates on the back of cost cuts, favourable foreign exchange movement, lower commodity prices and lower advertisement expenses.

But Maruti Suzuki isn’t the only automaker grappling with a demand slowdown. Tata Motors Ltd., too, reported a widening of losses in the three months to June due to weak demand in India and falling sales of its luxury brand Jaguar Land Rover.

Diesel Dilemma

The company is evaluating diesel models with 1.5-litre engines, Seth said. “It would be incorrect to say that it will fully exit its diesel portfolio.”

To be sure, Maruti Suzuki had during the January-March quarter said that it has stopped manufacturing diesel engines for its small cars and will discontinue their sales from April next year. The company would instead aim to convert all its cars to Bharat State-VI compliant petrol engines in 2019-20, it had said.

On Friday, Maruti Suzuki shares rose 0.78 percent to Rs 5805.55 apiece on the BSE while the benchmark Sensex gained 0.14 percent to end the day at 37,882.79 points.