Pressure on discretionary spends to hit near term volumes for Maruti Suzuki

But interest among first-time buyers may help it boost market share

An 81 per cent dip in volumes in the June quarter (Q1) of financial year 2020-21 (FY21) saw India’s largest passenger vehicle maker, Maruti Suzuki, report its first loss since listing. It reported a loss of Rs 249 crore, compared with a net profit of Rs 1,435 crore a year ago.

Pre-tax loss came in at Rs 345 crore, compared with a profit of Rs 1,910 crore in Q1FY20. Losses would have been higher but for a 58 per cent year-on-year (YoY) jump in other income to Rs 1,318 crore. 

Given that its production and sales were shut for a large part of the quarter, it sold just over 67,000 units in the quarter. Sales in the year-ago quarter and preceding quarter were in the 385,000-400,000 units range.

The sharp decline in volumes dented its performance at the operating level as well. Maruti posted a loss at the operating level of Rs 1,647 crore, compared with an operating profit of Rs 1,129 crore a year ago. The numbers were marginally lower than Street estimates. 

 

 

The company indicated that there has been some recovery in demand over the past couple of months. While there is no clarity on whether the sales are due to pent up demand, the company highlighted that enquiries/bookings have improved to 85 per cent of pre-Covid-19 levels. 

The company also said there was an increase in interest from first-time buyers with customers looking at personal mobility options because of the pandemic. First-time buyers account for about half of Maruti’s volumes and given that it is higher than the sales mix for the sector, the firm is expected to gain market share.

The need to conserve cash also led to falling replacement sales as customers postponed purchases. Sales of the compact segment — which accounts for over 56 per cent of volumes and includes Swift, Dzire, Baleno, Ignis, and Celerio — saw an 84 per cent dip in the quarter. Higher priced variants of these models could be impacted more given the cut on discretionary spends.

Analysts expect near term pressures to remain due to lower income levels and the postponement of discretionary purchases.