Stable performance from Maruti Suzuki

A 11.3 per cent volume growth in the quarter ended December 2017 coupled with a 2.3 per cent rise in average realisations helped Maruti Suzuki’s net sales grow by 13.9 per cent to Rs 18940 crore ( over the December 2016 quarter). Though the low base of the December 2016 quarter due to demonetisation might have propped up the numbers to a certain extent, there is no denying that the company has been on a strong wicket.

Even as the auto sector faced multiple headwinds in 2017 in the form of the after effects of demonetisation, the changeover to BS IV emission norms and the GST transition in the year 2017, Maruti Suzuki managed to maintain double digit volume growth in the March, June and September 2017 quarters. A richer product mix in favour of bigger cars and utility vehicles coupled with the launch of the refreshed versions of the Celerio, S-Cross and new sporty version of the Celerio has helped growth in the latest quarter. Operating margins expanded by one percentage point over the December 2016 quarter to 15.7 per cent now. Despite increase in raw material prices, cost control efforts and lower promotional expenses helped. Lower other income and higher taxes though bogged down profit growth which clocked only a 3 per cent growth to Rs 1799 crore.

Outlook

In the months to come, lower interest costs and boost to rural consumption expected in the budget will benefit Maruti. A strong product portfolio has already helped the company improve its market share to 50.3 per cent in April –December 2017, over 47.4 per cent in the April – March 2017 period. To tide over rise in commodity costs, the company has taken price increase from Rs 1700 – Rs 17000 across models earlier this month. Also, the company expects to revise its royalty downwards for new models starting with the Ignis. Royalty outgo at present amounts to 5.5 per cent of sales. This move may also help shield margins to an extent.

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