Q4 Results: Maruti Suzuki Lowers Sales Forecast For FY20
Maruti Suzuki India Ltd. forecast a lower sales growth for 2019-20 than the previous financial year, signalling that India’s auto slowdown is far from over.
India’s largest carmaker expects its volumes to grow between 4 percent and 8 percent in the financial year ending March 2020, said Chairman RC Bhargava at a press meet. That compares with CLSA’s estimate of 10.8 percent volume growth in FY20. The carmaker reported a 4.7 percent volume growth in FY19, compared with their scaled-down target of 8 percent.
“This (FY19) was a difficult year because of adverse foreign exchange rates and increase in commodity prices,” the company said. “The overall market was slow and had to be supported by higher sales promotion expenses.”
India’s auto sector is grappling with a slowdown since September last year because of higher upfront insurance costs and rising fuel prices. Sales weren’t as expected in the usually-strong Diwali festival season and year-end discounts didn’t help, causing an inventory pile-up at dealerships. That reflected in Maruti Suzuki’s earnings for the fourth quarter, when it announced 21 percent cut in production across factories.
The company’s fourth quarter profit and revenue came just in-line with the analysts’s estimates.
- Net profit fell 4.6 percent year-on-year to Rs 1,795 crore
- Revenue rose 1.4 percent over last year to Rs 21,459 crore
- Operating income fell 25 percent to Rs 2,263 crore
- Operating margin contracted to 10.6 percent from 14.2 percent
“This year going forward we are faced with the fact that for the last three quarters, market has been soft...Everything slowed down before the general election,” Bhargava said, adding that it is difficult to expect the market to pick up amid uncertainties surrounding varied things.
Rising fuel prices, issues surrounding the Iran oil sanctions are expected to impact the market, he said. The transition to new emission and safety standards is likely to push up prices, hampering demand, Bhargava said.
Everybody is suffering from the downturn in the marketRC Bhargava, Chairman, Maruti Suzuki
Phasing Out Diesel Cars
The carmaker said it intends to discontinue manufacturing diesel versions of its light commercial vehicles and stop selling them from April next year. Maruti Suzuki would aim to convert all its cars to BS-VI compliant petrol engines in the current financial year, Bhargava said.
The company is working on its electrical vehicles program and expects to launch the same by the next year, he added.
Bhargava, however, raised concerns over the affordability of electric vehicles in India. The cost involved in electrifying small cars is higher, putting them behind the reach of small car owners, he said.
Shares of Maruti Suzuki fell 2.2 percent to Rs 6,868.05 apiece, compared with the 0.7 percent decline in the NSE Nifty 50 index.
(Corrects an earlier version that misstated the consensus forecast for volume growth.)