The decision to phase out diesel engine vehicles may have an adverse impact on volumes and market share of Maruti Suzuki India Ltd - country’s largest vehicle manufacturer – in FY 20 and FY 21 as customers may choose to move to its competitors, according to brokerage and consultancy firms. The subdued growth in sales is likely to impact the overall financials of the company in current and next fiscal.
According to the projections made by London based information provider and consultancy firm, IHS Markit, the vehicle sales of the company in the calendar year 2019 will increase by just 2% to 17.9 lakh units and subsequently in 2020, the sales of the company might decline by 3% to 17.3 lakh once the new emission regulations come into effect.
On the other hand, domestic brokerage firm Motilal Oswal, also lowered the volume guidance of the company by 2% in FY 2020 and by 4% in FY 2021. The management of Maruti though is expecting volume growth in FY 2020 to remain in the rage of 4% to 8%.
“We have cut our FY 20 and FY 21 consolidated earnings per share by 2.5% and 4% respectively, as we have trimmed our volume estimates by 2%/4%. Margin estimates have been cut by 60 basis points each in FY20 and FY 21, but we increase our other income estimate," said analysts of Motilal Oswal in a report post fourth quarter earnings.
Given the high cost of upgrading the existing diesel engines to BS 6 norms and increasing the gap between the diesel and petrol driven car prices, Suzuki Motor Company decided to phase out all diesel vehicles by March 2020.
“We have taken this decision so that in 2022 we are able to meet the Corporate Average Fuel Efficiency norms and higher share of CNG vehicles will help us comply with the norms. I hope the union government’s policies will help grow the market for CNG vehicles," said R C Bhargava, chairman, Maruti Suzuki India Ltd, while making the announcement on April 25.
The share of petrol cars in India has risen from 47% in FY14 to 60% in FY18, according to data from the Society of Indian Automobile Manufacturers (Siam). During the same period, the share of diesel vehicles fell from 53% to 40%. In FY 19, almost 23% of the total sales of the company comprised diesel vehicles and analysts think that the company may not be able to shift the entire set of customers to petrol or CNG vehicles.
Mint on 19 April reported that Maruti Suzuki expects to push about half of its diesel car buyers to shift to petrol or CNG cars by offering incentives, and also provide CNG options in more models. It, however, fears that the remainder will shift to diesel cars of rival brands, according to an internal projection prepared by senior executives of Maruti.