Maruti Suzuki India Limited put up a poor show for the quarter ended September, as its performance deteriorated further, with no signs of relief for the company whatsoever. Falling sales, exorbitant raw material and sales promotion costs and costlier imports could be held responsible for the net profits going down by 60 per cent, compared to the same time last year.
Recently, India’s largest passenger car maker registered a net profit of Rs. 240 crore that is undoubtedly the weakest figure since the 2008 crisis. In their 29th October report, Sachin Gupta and Chetan Vora, analysts at Edelweiss Research said, “Maruti’s profit after tax was 40 per cent below our and consensus expectations.” The analysts have envisaged a discouraging value of the stock, with a target price of Rs. 1,060.
The Street experienced worst trends than expected, with the decline in profits proving to be much more intense. Following the report, the stock tumbled by 1.6 per cent to close at Rs. 1,130.55 on the National Stock Exchange (NSE), contrary to the 3 per cent rise in the big markets.
Ascending competition, increasing interest rates and malfunctioning production have proved to be a nightmare for the stock, which has declined by a worrisome 21 per cent this year on the Bombay Stock Exchange (BSE), as compared to 11 per cent for the Sensex.
The labour unrest at Maruti's Manesar plant in Haryana, one of its two production facilities in north India, and a crippling demand resulted in the lowering of its volume and revenue. While the volumes fell by 20 per cent year-on-year, coming down to 2,52,000 units, revenues dipped by 16 per cent to Rs. 7,537 crore.
Even the car maker's highest selling car Alto suffered a sales nosedive of 20 per cent year-on-year during the quarter. The company stated that it suffered a loss to the tune of Rs. 840 crore in the quarter owing to the disturbance at the plant.
While the production loss for the September quarter has been estimated to be around 28,000 units, the loss for the past two quarters is likely to go up to 83,000 units. However, the production seems to gain momentum once again and is expected to shoot up an annual rate of 1.55 million from 1.3 million presently.
Gupta and Vora of Edelweiss Research note also said in their report that, “The appreciating yen affected margins by 130 bps on both high royalty and raw material costs. High promotion cost bloated other expenditure by 100 bps and weak product mix and negative effect of operating leverage (since sequential sales dropped 10 per cent) accounted for the balance decline. The full impact of an appreciating yen is likely in the second half of FY12, as the exposure is unhedged, whilst promotion and discounts are likely to stay high, amidst poor demand.”
Thus, for Maruti, leaving a single stone unturned, in a bid to recuperate from the dismal situation, can prove to be fatal and also, there is a strong possibility that its rivals may mould things in their advantage.
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