Kerala floods, Re fall, higher input cost to dent Maruti's Q2 performance

India's biggest car manufacturer Maruti Suzuki India (MSIL) is expected to announce its September quarter earnings for FY19 on Thursday. The auto major is likely to report subdued numbers for July-September period owing to a host of headwinds such as commodity inflation, adverse currency movements, delayed festive season and Kerala floods.

Maruti had reported a lower-than-expected profit growth of 27 per cent YoY to Rs 19.75 billion for the June quarter. Net sales rose 27.3 per cent to Rs 218 billion during the same period.

On a year-to-date (YTD) basis, the company's stock has dropped around 30 per cent against S&P BSE Sensex's flattish growth.

For the second quarter of FY19, the auto major's PAT (profit after tax) is expected to decline 19 per cent YoY (over 2 per cent QoQ) to Rs 20 billion, says Motilal Oswal Securities. The brokerage has also trimmed FY19/20 earnings per share (EPS) estimates by 11 per cent/13 per cent, to factor in currency volatility. Emkay Global Securities sees a 28 per cent YoY fall in net profit. 

Prabhudas Lilladher notes that during the September quarter, MSIL's volumes were down 1.5 per cent YoY and with no significant price hike taken along with higher discounts given during the quarter, the company is expected to report muted revenue growth of nearly 2 per cent YoY. Further, given the commodity price rise as well as unfavourable yen movement, margins are likely to be lower by 270 basis points (bps) YoY and 70 bps QoQ.

Net sales in Q2FY19 is expected at Rs 221.81 billion, up 1.9 per cent YoY. EBITDA for the period under review is seen at Rs 31.92 billion (EBITDA margins at 14.4 per cent, down 50 bps QoQ). PAT in Q2FY19 is expected at Rs 2,146 crore, down 13.6 per cent YoY, says ICICI Securities.

Edelweiss Securities said, "Overall volume de-growth of 1.5 per cent YoY is likely to keep revenue growth muted at 1.4 per cent YoY. We expect operating margin to decline by 40 basis points (bps) sequentially to 14.7 per cent as benefits of the favourable mix are likely to be more than offset by an increase in costs."

Key issues to watch out for in the results include update on demand scenario, channel inventory, discounting trends and new launches, demand trend in urban and rural areas and clarity on action plan under Suzuki-Toyota partnership.