Maruti Suzuki Q1 preview: Demand slowdown, low volumes to drag earnings

The country's largest carmaker Maruti Suzuki (MSIL) will report its June quarter earnings on Friday. Analysts expect a weak quarter for Maruti due to the slowdown in demand and plummeting volumes which would offset the gains due to higher net realization.


During the quarter, MSIL volumes declined around 18 per cent year-on-year (YoY) and around 12 per cent quarter-on-quarter (QoQ) to 402,594 units.


Edelweiss expects Maruti to report a 16 per cent dip in revenues on YoY basis to Rs 18,626.9 crore while net profit may slide 38 per cent to Rs 1,224.2 crore. The carmaker had posted a profit of Rs 1,975.3 crore in Q1FY19. The brokerage firm said weak volume and ASP (average selling price) growth would pressure the company's topline.


As per Motilal Oswal, even though net realization is expected to increase 4 per cent YoY and 1 per cent QoQ to Rs 475,078 per unit, Maruti may still post a net revenue decline of 15 per cent YoY to Rs 19,090 crore. The higher realisations is on account of BS-VI/safety norm compliant variants launched during the quarter.


Prabhudas Lilladher pegs Maruti's Q1 revenue at Rs 19,105.4 crore and profit at Rs 1,200.1 crore.


At the operating level, the slight relief in commodity prices, as well as favourable currency movement, may keep margin flat at 10.5 per cent on a sequential basis even though it'd still be 440 bps lower on a YoY basis, the brokerage said. The earnings before interest, tax, depreciation, and ammortisation (EBITDA) may come in at Rs 1,996.5 crore, down 40.4 per cent on YoY basis and 11.8 per cent on a QoQ basis.


According to analysts at Motilal Oswal, margins may decline 470 bps on a YoY basis, 30 bps per cent QoQ, to 10.2 per cent, mainly due to higher discounts and operating deleverage. EBITDA is estimated to decline by 42 per cent YoY to Rs 1,942.8 crore as compared to Q1Fy19's Rs 3,351.1 crore, they said.


Investors should watch out for an update on the demand scenario, channel inventory, discounting trends and new launches as well as demand trend in urban and rural areas.


At the bourses, Maruti's stock has underperformed the benchmark S&P BSE Sensex. The stock has dipped 2.05 per cent during the June quarter of FY20 as against 1.86 per cent rise in the Sensex during the same period.