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Maruti’s Alto retained the top position in July with the sales of 26,009 units as against 19,844 unit sales in the same month of 2016. Photo: Bloomberg
Maruti’s Alto retained the top position in July with the sales of 26,009 units as against 19,844 unit sales in the same month of 2016. Photo: Bloomberg

Demand conditions remain uncertain says Maruti Chairman

On Thursday, Maruti Suzuki reported a marginal 0.95% year on year increase in a net profit to 1371.6 crore for quarter ending September 30

Country’s largest passenger vehicles maker Maruti Suzuki India, remains cautious about future demand despite a substantial recovery in sales numbers since the June quarter this year. On Thursday, Maruti Suzuki reported a marginal 0.95% year on year increase in a net profit to 1371.6 crore for quarter ending September 30 as easing of lockdowns coupled with festive season sales has brought customers back, which the carmaker said may no0t sustain if demand related conditions don't improve in the broader economy.

“The impact of people wanting to buy vehicles for personal use and festivals will be over by December. The rural segment will continue to grow substantially. We don't know how the urban demand will be and how much income people in urban markets will be left with, said RC Bhargava, Chairman maruti Suzuki India. “ I don’t see any strong urban demand after the festival since people can’t afford the vehicles even if they want to buy them,"he added.

With lockdown measures easing from May, Maruti has seen sharp increase in sales of vehicles, especially the entry level hatchback category due faster recovery in demand in the rural markets and shift in customer preference for personal mobility to avoid Covid-19 infection. Hence, on a sequential basis the New Delhi based car maker has managed to engineer a sharp turnaround in its fortunes from the June quarter when it reported a loss of 249.9 crore, first ever in two decades, due to the adverse impact of the lockdown measure to contain Covid-19 pandemic.

The auto industry has been clamouring for a reduction in GST on vehicles, over the last two years to increase demand for vehicles, since sales have been on a decline since the second half of FY 19. The union government has also been considering a reduction in GST on two wheelers. Bhargav however said that the auto industry doesn’t need a tax reduction on vehicles across categories as of now, since there is demand for vehicles in the market and the government should come up with stimulus for the auto industry if vehicle sales drop sharply next year.

“The auto industry has done well in the second quarter and I don’t think anyone has suffered because of lack of demand. Giving a relief at this stage is not necessary. If there is a sustained decline in sales next year then the government needs to come in. Today, I am selling everything I produce, and if there is a sudden increase in demand due to tax cut then I would not be able to meet the demand," added Bhargava.

The New-Delhi based carmaker’s net sales during the quarter increased by 9.73% year-on-year to 17689.3 crore on the back of 16.2% jump in total vehicle sales to 3,93,130 units. On a month on month basis, sale of vehicles increased from just 36775 units during the June quarter.

Due to a 34.5% decline in other income and a 70 basis points jump in raw material cost as part of net sales, Maruti’s net profit fell short of Bloomberg’s estimate of 1519.5 crore. It also couldn’t meet the revenue estimates pegged at 19131.7 crore.

Due to higher sales volumes and cost cutting measures, the company’s operating profit or earnings before interest, tax, depreciation and amortization (EBITDA) rose by 20.37% to 1933.6 crore and operating margins also expanded by 103 basis points to 10.93%.

The company retailed 96700 vehicles in the Navratri period which is higher than last year and is expecting better sales in November.

“The commentary of the management was very positive about the demand outlook of the PV sales. Maruti’s margins may face pressure from higher commodity prices and despite a significant downtrading during the past quarter, the company has been able to maintain a healthy improvement in margin on a Y-o-Y basis. Cash flow also has been very strong for 1HFY21 on account of better operating performance and inventory correction," said Shauqat Ali, senior equity analyst, Asian Markets Securities.

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