by Suhani Adilabadkar

With Alto, the number one selling car in India for 16 consecutive years, Maruti Suzuki rules the Indian passenger vehicle market with over 52% market share. It is the crown jewel of parent Suzuki Motors (SMC) with a combined capacity of around 2 million units per annum, from its two manufacturing facilities in Gurugram and Manesar in Haryana. It also has additional capacity at Suzuki Motor Gujarat (an SMC subsidiary), in Hansalpur, Gujarat. This positions Maruti Suzuki well amidst the Covid headwinds, hyper intensive competition, and downtrading by car buyers to take advantage of recovery in demand.

Quick Takes:

• Revenue from operations came in at Rs 18,756 crore in the September quarter, rising 10% YoY. 

• Operating profit came in at Rs 1,936 crore in Q2 FY21 growing 20% YoY aided by higher volumes, lower sales promotion and operating expenditure. Margins expanded 85 bps YoY to 10.32%, while net profit was up 1% at Rs. 1,362 crore.

• First-time buyer proportion among sales wasup by 500 bps YoY in H1 FY21 (48% vs 43%) while replacement demand declined to 18.8% against 26.4% during the same period last year.

• Sales of the compact car segment, comprising WagonR, Swift, Celerio, Ignis, Baleno and Dzire, rose 27% YoY in October 2020, but fell 1.8% YoY in November 2020

• Sales of utility vehicles, which include Gypsy, Ertiga, S-Cross, Vitara Brezza, XL6 rose 10% YoY, while those of  Omni and Eeco (vans) soared 33% YoY in October 2020 compared to the same period previous year. 

• Sales growth of UVs slowed to a mere 2.4% YoY in November 2020, while vans grew 10%

September Quarter FY21

Driven by pent up demand and a shift towards personal mobility, Maruti Suzuki India Ltd (MSIL) reported steady numbers in Q2 FY21. Revenue from operations stood at Rs 18,756 crore in September quarter FY21 against Rs 16,998 crore a year ago, rising 10% YoY. Domestic sales were 3,70,619 units, up 18.6% while exports fell 12.7% YoY. 

Operating profit for the quarter came in at Rs 1,936 crore in Q2 FY21 compared to Rs 1,610 crore a year ago, growing 20% YoY. Higher volumes, lower sales promotion and operating expenditure aided Maruti Suzuki’s operating performance Margins were 10.32% in Q2 FY21 expanding 85 bps YoY. Net profit (PAT) for the quarter was up merely 1% to Rs. 1,362 crore. This is because Q2 FY20 had mark-to-market gains and income lower tax expenses. Maruti Suzuki’s stock fell 1.5% after its September quarter result was announced.

Functionality Takes Over Aspiration

For the auto sector, FY20 was ridden with a rise in retail price due to the implementation of new emission norms, safety regulations, higher insurance premium, and road taxes. This led to a near 20% rise in the selling price of entry-level cars. 

In addition to this, cautious lending by NBFCs and banks, customers waiting for a GST cut and favourable EV progression made matters worse. Then came the pandemic. 

For India’s largest car manufacturer, volumes fell 18% in FY20. In early April 2020, Maruti Suzuki touched its 52-week lows , at around Rs 4000. The negative momentum continued into the next fiscal with no sales in April and about 13,000 units sold in May. As a result,  Maruti Suzuki posted a net loss of Rs. 247 crore in the June quarter FY21. 

Volumes picked up in the quarter ended September 2020, aided by customers’ shift towards personal mobility and pent up demand. Customers bought cars in the entry-level segment which led to an adverse product mix, and as a result lower realizations per unit. The small car segment was facing strong headwinds in previous quarters. But first-time buyers saw this segment perform well in the quarter ended September 2020.

The management said first-time buyer proportion rose by 500 bps YoY in H1 FY21 to 48%, while replacement demand declined to 18.8% during the quarter ended September 2020 against 26.4% a year ago. 

Ajay Seth, CFO, Maruti Suzuki India Ltd, said, “Rural markets continue to see higher growth compared to urban markets. The attractive vehicle financing schemes also played an important role in maintaining the sales momentum. CNG, a clean air and affordable alternate fuel for vehicles, continues to see increased acceptance with expansion in the CNG distribution network. During the quarter, the sales of CNG models posted growth and now commands a penetration of 11.2% in overall sales of the company compared to 7.1% during the same period last year”. 

Rural India powered sales momentum, helped by innovative vehicle financing (80% vehicles are financed). This augurs well for the industry as a whole. As Maruti Suzuki shut down diesel vehicle production from April 2020, CNG is important to the overall growth equation in the long run.

Festive Upswing with Uncertain Growth Scenario

The management said the December quarter is off to a strong start driven by the festival season. In fact, Chairman RC Bhargava said that there is no need for a GST cut right now to boost passenger car sales. Maruti Suzuki’s plants are operating at 85-90% of its peak capacity and registered strong October sales numbers with its domestic passenger car segment reporting 18% growth YoY. 

The sales in October 2020 grew in double digits supported by the compact car segment comprising WagonR, Swift, Celerio, Ignis, Baleno and Dzire. Sales in this segment rose 27% YoY. Sales of utility vehicles comprising Gypsy, Ertiga, S-Cross, Vitara Brezza, XL6 rose 10% YoY while vans, Omni and Eeco sales soared 33% YoY in October 2020 compared to the previous year. However, November 2020 sales rose by only 1.7% YoY to 1,53,223 units as sales of compact and mini cars fell 1.8% YoY. Although utility vehicles, vans and sedans grew 2.4%-29.1% during November, they made up only one-third of the company’s total sales.

Maruti Suzuki’s peers like Hyundai, Tata Motors, and Kia Motors reported robust festive sales. With 40% of its revenues coming from rural areas, which is the growth engine at the moment due to higher support from government stimulus measures, the future bodes well for the company. Although Maruti Suzuki is adapting to the changing times to boost sales by introducing subscription (leasing) programs, various digital initiatives and innovative financing schemes, growth may lose steam in FY22. 

With Diwali bringing some bit of cheer to the passenger car segment, Maruti Suzuki expects March quarter to do well, and has raised its production estimates for Q4 FY21.