Maruti signals tough road, gives weakest growth forecast in the past 5 yrs

Maruti Suzuki, India’s largest carmaker, sounded the alarm bells for the auto market, signalling its weakest growth forecast in the past five years.

The company, which sells every second car in the domestic market, said it expected production and sales to grow between 4 per cent and 8 per cent for the financial year started in April.

Last year, the company targeted a 10 per cent rate of growth in sales but later revised it to 8 per cent. The Suzuki-owned company has been logging a double-digit growth rate for four consecutive years. The company attributed the tepid growth forecast mainly to a downturn in the market, which, it says, will take time to improve. 

“There are unfavourable factors that might impact growth in the next financial year. There is a downturn in the overall industry, uncertainty over petrol prices (due to the embargo on Iran), and a shift to the BS VI model, due to which prices will go up. However, there are favourable indications too,” Maruti Suzuki Chairman R C Bhargava said.

The company reported a fall in net profit for the fourth quarter ended March 31 because of industry-wide weak demand. The carmaker's net profit fell by 4.6 per cent to Rs 1,795.6 crore. The street had estimated the automaker would post a net profit of Rs 1,747 crore for the quarter. 

This quarter was marked by adverse foreign exchange rates and high commodity prices, higher depreciation, and higher sales promotion expenses, partially offset by cost reduction efforts, the company said.

Bhargava said the overall car market was affected due to a slowdown in both rural and urban markets. 

“In Q4, we did not grow at all. And the industry is not growing. Actually, the industry has declined. The company saw a growth rate of 2 per cent in the rural market in Q4 and a negative growth rate in the urban market. The market has been flat for all companies and for all segments, be it passenger vehicles, commercial vehicles, or two-wheelers,” Bhargava said.

The Society of Indian Automobile Manufacturers (Siam) has forecast single-digit growth for overall vehicles sales in FY20 owing to rise in commodity prices, the elections, a below-normal monsoon, etc. According to Siam, passenger vehicle sales are projected to grow at 3-5 per cent and commercial vehicles at 10-12 per cent. The two-wheeler segment is expected to grow at 5-7 per cent and the three-wheeler segment at 7-9 per cent.

However, the carmaker has earmarked a capex of Rs 4,500 crore for the current financial year. The investment will go into various initiatives including product development, R&D, and land acquisition for the sales network, Maruti Suzuki Chief Financial Officer Ajay Seth said.

Maruti to phase out diesel cars by next Apr

Maruti Suzuki India has confirmed that all its diesel cars that come with a 1.3-litre DDiS engine will be phased out by next April. The company said that as BS VI norms kick in from April 2020, it would mainly focus on upgrading its petrol engine line-up. Sixteen Maruti Suzuki petrol models need to be upgraded to BS VI.”Any vehicle is phased out if the assessment is that it will not sell. The conversion cost of a BS IV diesel car to BS VI has a certain amount of money involved, which is quite significant... Our assessment is it's not going to be a viable product,” said R C Bhargava, chairman, Maruti Suzuki.