Maruti Suzuki Q3 Results: Profit Meets Estimates, Margin Expands

Maruti Suzuki India Ltd.’s profit met estimates in the three months ended December as sales rose after five quarters.

Net profit of India’s largest carmaker rose 5 percent year-on-year to Rs 1,565 crore in the October-December period, according to an exchange filing. That compares with the Rs 1,587-crore consensus estimate of analysts tracked by Bloomberg. Its bottom line had hit a four-year low in the second quarter.

The third-quarter profit, according to the filing, was aided by cost cuts, lower operating expenses, fall in commodity prices and reduction in corporate tax rate, partially offset by a rise in sales promotion expenses, higher depreciation, and lower fair value gains on invested surplus.

This comes as India’s automakers are trying to push sales since the festival season of 2018. First, higher upfront insurance costs and rising fuel prices deterred buyers. Then a consumption slowdown curtailed purchasing power further. Discounts failed to lift sentiment, leading to production cuts as inventory piled up at dealerships. Sale of cars and utility vehicles fell to a record low in 2019. Maruti Suzuki’s sales have been declining for five straight quarters.

But that reversed in the three months ended December. The company’s sales rose 2 percent over last year to 4,37,361 units during the quarter. And that aided its revenue as well. Maruti Suzuki’s revenue increased 5 percent to Rs 20,707 crore, against the Rs 20,877-crore estimate.

Its earnings before interest, tax, depreciation and amortisation increased 9 percent to Rs 2,103 crore, missing the Rs 2,339-crore estimate. Ebitda margin, too, expanded to 10.2 percent from 9.8 percent a year ago. Analysts had pegged the operating margin at 11.2 percent.

“Ebitda margins have come back to double digits after facing severe pressure,” Ankit Merchant, equity analyst at SMC Institutional Equities, told BloombergQuint.

Conference Call Takeaways

• Margin was impacted by higher discounts. Growth would have been 140 basis points higher if discounts were low; discounts have trended down in January.
• This is the last month of production of diesel cars. The company will only produce petrol variants from next month. Diesel models of its compact SUVs Brezza and S-Cross will not be produced.
• Of Maruti Suzuki’s total market share, 40.2 percent comes from the petrol segment and around 9 percent from diesel.
• For the first time in 15 years, the diesel penetration fell below 30 percent for the industry.
• The petrol segment contributed 80 percent to the company’s sales during the quarter ended December.
• The company does not expect depreciation to rise in the fourth quarter.
• The industry is expected to have a volume growth of 3-5 percent going forward; the company expects a higher growth for SUVs and lower for passenger cars.
• Drop in commodity prices is a short-lived pleasure. Prices will not be a good news for the next year.
• Steel and precious metals have shown an uptick. The company expects the benefits of lower commodity prices to reverse from next year.
• The company’s price hikes are lower than competitors, which should give it an edge. Average price increase is Rs 5,000-7,000.
• It plans to a Rs 4,000-crore capex this year and has already spent Rs 2,500 crore.
• The company will set up one-of-its-kind vehicle dismantling and recycling joint venture in Noida by fiscal year 2021.

Shares of Maruti Suzuki fell as much as 1.2 percent to Rs 7,065 apiece after the company announced its December-quarter results, compared to a flat benchmark Nifty 50 Index. The stock has gained 9.5 percent over the last 12 months, underperforming the benchmark’s 13 percent gain.