Maruti Suzuki Q2 preview: Poor quarter in the offing, profit may halve

The overall slump in the auto sector marked by plummeting volumes will impact the September quarter results of India's largest carmarker Maruti Suzuki which is scheduled to be announced later in the day. Analysts expect the company's net profit to almost halve from the year-ago levels while margins may also dip around 10 per cent.


Brokerage house ICICI Securities said that Maruti's Q2 performance is in line with the overall performance of the auto sector where "pain prevailed across segments and geographies in the sector as retail demand failed to pick up, with the resulting bloated inventory levels then impacting wholesale dispatch volumes adversely".


During the quarter under review, Maruti Suzuki outperformed the benchmark indices at the bourses. Maruti's stock price has advanced 3.6 per cent, as against 1.45 per cent dip in the benchmark S&P BSE Sensex during the period.


Here is what brokerages expect from Maruti's July-Sept quarter earnings:


Prabhudas Liladher


Analysts at Prabhudas Liladher expect the inventory correction and production cuts during 2QFY20 as reflected in sharp decline in volumes across segments to continue to dent Maruti's financial performance. Maruti's volumes declined 30 per cent year-on-year (down around 16 per cent QoQ) to 3.4 lakh units during the quarter. 


They expect Maruti to post a revenue decline of 24 per cent on a year-on-year basis at Rs 16,820 crore despite an expected increase in realization to 8 per cent YoY. In comparison, the company had reported Rs 22,233 crore as revenue in the year-ago quarter. Net profit may also halve to Rs 1,100 crore against the Rs 2,040 crore it posted in the same quarter last year.


"We believe the decline in raw material prices to be offset by unfavourable currency movement and negative operating leverage. Hence margins are expected to be at 10 per cent, down 40 basis points sequentially. Earnings before interest, taxation, depreciation, and amortisation (Ebitda) is seen at Rs 1,677 crore, down 48 per cent YoY from Rs 3,231 crore in the year-ago quarter," the brokerage said.


ICICI Securities


The brokerage expects a poor quarter for Maruti, in line with the subdued mood in the entire auto sector. The brokerage expects the big volume drop will pull down revenue by 23 per cent YoY to Rs 16,944 crore while net profit may dip 48 per cent YoY to Rs 1,166 crore.


"Sales drops lag the volume decline on account of lower ASP segment (mini & compact) having contracted to a greater degree than UV portfolio. Maruti is expected to have realised input cost benefits. However, a sharp volume drop is seen impacting operating leverage negatively, thus dragging EBITDA margins by 40 bps QoQ to 10 per cent," analysts said.