Home/ Markets / Mark To Market/  Maruti Suzuki faces a glitch on the road to recovery

Maruti Suzuki India Ltd is not completely out of the woods with respect to semiconductor shortage. True, this crisis had a minimal impact on production of vehicles during February even as the production volume last month was down by 14% sequentially.

But in March, the chip shortage is likely to have a notable impact on production, according to the automaker. Given this and healthy demand for passenger vehicles (PV), the automaker’s order book could swell but would reflect under-production to a certain extent.

The demand momentum in domestic markets continues to be intact. In February, Maruti’s domestic wholesale PV volumes stood at 147,467 units, up by 10% year-on-year and flat sequentially. When compared to pre-covid level (February 2019), volumes are up by 8%.

The company’s hatchback segment saw a modest year-on-year recovery in volumes. Moreover, sport utility vehicles (SUV) sales are gaining traction. Continued momentum here would help Maruti regain its lost market share. According to Kotak Institutional Equities, Maruti’s market share stood at about 44% in February 2023, flat year-on-year and higher by 150 basis points quarter-on-quarter. One basis point is 0.01%.

However, subdued export markets meant drop in Maruti’s volumes by 28% year-on-year. This was a drag on overall volumes as they were higher by only 5% year-on-year. Even so, Maruti’s February volumes were ahead of analysts’ estimates.

On the margin front, there are levers for growth. “Our commodity cost index has been largely flattish over the past month. Moreover, original equipment manufacturers such as Maruti Suzuki, Tata Motors Ltd and Mahindra & Mahindra Ltd announced about 1% price hike in January - February 2023, which may support some margin expansion, in our view," said analysts at Nomura Financial Advisory and Securities (India) in a report on 1 March.

To be sure, investors in Maruti stock would do well to closely watch the El Nino effect as it may weigh on rural demand. Note that the automaker derives a large share of its volumes from the entry-level segment. Shares of Maruti Suzuki are down by 12% on the National Stock Exchange from their 52-week highs of Rs9,769 apiece seen in October.

Vineetha Sampath
Vineetha Sampath is a chartered accountant and is experienced in the field of research analysis. She joined Mint's Mark to Market team recently and this is her first stint in journalism.
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Updated: 02 Mar 2023, 11:38 AM IST
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