Maruti still in slow lane, profit skids to lowest

MUMBAI: Maruti Suzuki’s profit fell for the fourth consecutive quarter to its lowest in three-and-half years, as the slowdown in the automobile market got worse and the nation’s largest carmaker had to spend more to entice buyers.At Rs 1,435.50 crore, the net profit for the April-June quarter fell more than 27% from a year earlier, but topped the Rs 1,340 crore average estimate of analysts tracked by Bloomberg. Its shares rose 0.78% to close at Rs 5,805.55 on the BSE Friday, outpacing the benchmark Sensex index that rose 0.14%.Revenue at the local unit of Japan’s Suzuki Motor dropped more than 14% to Rs 18,735.2 crore, the steepest decline since December 2011, even as vehicle sales slid 18%. “We don’t see any positive signal in the marketplace that will give a sense of optimism in the future. We will wait and watch,” senior executive director RS Kalsi told analysts at a post-results conference call.Weak Demand in Coming MonthsThe automaker said it would restrict stocks at dealerships to equivalent of 30 days’ sales despite the upcoming festive season, and be watchful of the inventory as the market environment remained adverse.Usually, automakers increase vehicle dispatches to dealerships ahead of the festival season, which is also typically the peak sales period. The statement from the market leader shows it is cautious this time, and also underlines the severity of the downturn in the passenger vehicle market, where sales have fallen every month in the past one year, expect for flattish numbers in October.“There is a big drop in walk-in enquiries. We are putting a lot of effort to generate enquiries and have multiplied field activities. The delayed and deficient rainfall has also impacted rural sales, which too have declined by 17%,” Kalsi said. “Unnecessarily loading inventory in these difficult times does not make sense,” the executive said.Maruti said higher sales promotional expenses, depreciation and low capacity utilisation hurt its financial performance. These were partly offset by lower advertisement expenses, cost reduction efforts as well as favourable exchange movement and commodity prices.The company told analysts that it expected the demand environment to be very weak in the coming months. As a result, it forecast discounts to stay at elevated levels to push sales.But it is also prepared to step up production if the situation improved, Kalsi said. “Our production system is flexible, we have enough capacity, if there is an increase in demand, we will react.”The company said all its models would transition to Bharat Stage VI emission standards by the end of 2019, ahead of the April 1, 2020 deadline set by the government.When asked if the company would increase vehicle prices, Maruti executives said it was passing on higher cost from transitioning the BS VI standards and new safety rules to customers. However, it has no plans to increase prices on account of other costs as the market environment remains tough.PAY ROYALTIES IN RUPEE TERMSIn a bid to reduce the risk from currency fluctuations, Maruti Suzuki has decided to fully pay royalties to parent Suzuki Motor in rupee terms. At present, 45% of the royalties is paid in rupee terms, or without adjusting to exchange rates. By 2021-2022, this would become 100%, it told analysts.

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