New Delhi: Maruti Suzuki India Ltd, the country’s largest passenger vehicle maker, has cut production for the third consecutive month in April underscoring tepid demand for automobiles.
The maker of Swift and Baleno cars reduced production by 9.6% to 163,368 vehicles in April, according to a regulatory filing.
Like most passenger vehicle makers, sales at the local unit of Suzuki Motor Corp. have remained subdued since September last year due to weak consumer sentiment caused by factors such as a liquidity squeeze and higher fuel as well as vehicle prices.
In March, the New Delhi-based company cut production by 21% to 136,201 vehicles, following on a 8.3% reduction in February to 148,959 vehicles. Maruti’s top management has guided for a sales growth of 4-8% in this fiscal year.
Bharat Gianani, an analyst at ShareKhan, said the third straight month of production cut by Maruti is a reflection that the passenger vehicle market is continuing to remain under pressure with industry volumes falling 15% in April 2019 due to weak consumer sentiment on account of slowing economic growth, increase in ownership cost due to regulatory insurance and safety features and uncertainty before the general elections.
Maruti first cut production in February as dealers were saddled with inventory ranging from 45-60 days after Diwali last year when car sales lagged expectations. The step was taken to match wholesale dispatches with retail demand.
In FY19, Maruti’s vehicle sales grew 6.1% to around 1.75 million units, the lowest in five years. Data issued by the Society of Indian Automobile Manufacturers showed that total domestic passenger vehicle sales rose a meagre 2.7% in FY19 to nearly 3.38 million vehicles.
Indicating the lack of recovery in urban and rural demand before the announcement of election results, Maruti reported a 19% drop in wholesales, or factory dispatches, to 133,704 vehicles in April, while second-largest, Hyundai Motor India Ltd, posted a 10% decline. The third-largest passenger vehicle maker, Mahindra and Mahindra Ltd, posted a 9% drop in wholesales in April.
According the Federation of Automobile Dealers Associations, retail sales of passenger vehicles, an indicator of urban demand, fell 2% from the year earlier in April to 242,457 vehicles, while overall vehicle sales fell 8% during the month.
“Every time before the general elections, vehicle sales across segments slow down and subsequently the market recovers but we cannot expect a quick recovery. This happened in both 2009 and in 2014. The stock market is growing and the Indian economy is also expected to grow. So, the automobile industry cannot remain behind if economy keeps growing," R.C. Bhargava, chairman of Maruti, said at the company’s March quarter earnings press conference.
Slowdown in vehicle sales have also impacted Maruti’s financial performance in the last fiscal year with the company reporting a 2.9% drop in net profit to ₹7,500.6 crore in FY19, while revenue grew 6.3% to ₹8,3026.5 crore.
“We expect production cuts to continue in the near term due to subdued demand and higher channel inventory. Operating deleverage due to subdued volumes coupled with higher discounting due to increased competition would impact earnings in the near term. We had recently downgraded the stock from Buy to Hold and retain a cautious view on the stock," Gianani said.