Calculus - Maruti in Cruise Control on Discounts, First-time Buyers Investment earmarked for developing new cars and an R&D centre in Haryana; co posts 21% jump in Q1 profit Macros, consumer confidence key to sustaining sales, switch to `pull demand from `push demand Maruti Suzuki India has posted a 21% jump in its net profit for the quarter ended June at . 762 crore, driven by a pickup in sales, higher ` localisation of its vehicles and foreign exchange gains. The companys net sales for the first quarter stood at ` . 11,074 crore, 11% more than the year-ago quarter. To keep up the momentum and protect its market share in the face of increasing competition, Maruti Suzuki plans ` . 4,000-crore capital expenditure this fiscal that would go into developing new models as well as the upcoming R&D centre in Rohtak, Haryana, companys chief finance officer Ajay Seth said. “We are planning to commission a test track and other research facilities by the end of this year,“ he told analysts. Maruti Suzuki will launch new products in segments like sedans, SUVs and multi-utility vehicles, Seth said. “We are also investing in new stockyards and warehouse across the country .“ He said Marutis efforts to cut down imported parts used in its vehicles has helped the company save on forex. The imported content for its cars has come down to 16% from 24%-25% in 2010-11, Seth said. Maruti said sales have picked up in recent months as excise tax cuts announced in the Budget wooed customers back into showrooms in large numbers after a sluggish 2014 fiscal when Marutis sales declined 5% to 17.86 lakh units in the domestic mar ket. In April-June, the company sold 299,894 vehicles, 12.6% more than the yearago quarter. Sales in the domestic market grew 10% to 270,643 units while exports jumped 39% to 29,251 vehicles. Maruti shares closed at `. 2,524 on the BSE on Thursday after the results were announced, 1.07% lower than its previous . 2,589. close. It hit an intra-day high of ` “The results are `in-line with our expectations of . `770 crore,“ said Surjit Arora, equity research analyst with Prabhudas Lilladhar. “Maruti is the top pick in the auto space as sales are expected to grow by 15% for the next two years, on the back of revival in the urban market and strong demand from rural markets,“ he said. Arun Agarwal, auto analyst with Kotak Securities, said recovery in entry-level passenger car demand coupled with new launches from the company will support volume growth over the next two years. “As demand recovers and volumes increase, operating margins are expected to benefit from positive operating leverage and reduction in discounts, we expect healthy earnings growth,“ he said. Maruti has also announced plans to launch premium sedan Ciaz and a crossover SX4, CROSS. Both the cars are expected to hit the market in the festive season. Maruti is also expected to launch a compact hatchback by yearend. Meanwhile, PTI reports Japanese carmaker Suzuki Motors chairman and CEO Osamu Suzuki visited PM Narendra Modi on Thursday. The PMO described it as a `courtesy call. Indias biggest carmaker Maruti Suzuki put up a good show in the June quarter, this at a time when consumer sentiment continues to be fragile. Marutis performance can be attributed to a phenomenon called the `pushed demand, where it boosted its volume growth by creating demand in markets: it offered higher discounts to attract consumers, who had pinned their hopes on a Modi-led government to deliver on its promise of acche din. The average discount the company offered in the June quarter increased to Rs 21,000 per vehicle against Rs 17,500 in the March quarter, which improved entry-level passenger car sales by a significant 22% y-o-y to 1.19 lakh units in the quarter under review. This segment now constitutes about 44% of the total sales, compared with 40% during the same quarter last year. The company even offered discounts ranging from `. 40,000-45,000 per vehicle for entry-level cars to crank up its volume. Theres another factor that helped Maruti raise its game: first-time buyers. The sales volumes for firsttime buyers in the June quarter rose to 43% compared with 39% in the corresponding quarter last year. The carmaker strategically targeted first-time buyers, offering them higher discounts, turning several such enquiries into sales. Despite the auto industry witnessing a decline in this period, Maruti Suzuki posted a volume growth of 12% on a year-on-year basis. In a conference call post earnings, the Maruti management said, “After many quarters, the company has witnessed a 12% growth in its urban sales during the June quarter while rural sales increased 26% -both these factors helped the company attain a market share of 44% in the passenger car segment. Our market share was 40.4% a year ago. We have also witnessed a rise in enquiry levels, which have increased by as much as 10%.“ The market would, however, keep a close watch on how soon a `push demand can change into a `pull demand. The long-term sustainability of sales volume and a change in the demand scenario depend to a large extent on macro indicators like economic growth and job creation.
Posted on: Fri, 01 Aug 2014 11:23:55 +0000
Trending Topics
Recently Viewed Topics
© 2015