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Informist, Monday, Jan. 27, 2025

By Anand JC

MUMBAI – Higher discount-led sales during the festival season, robust marketing, and advertisements may have helped Maruti Suzuki India Ltd. tide over inventory troubles in the December quarter. However, these measures are likely to affect the company's operating margin adversely, analysts said. An uptick in volumes in addition to a richer product mix likely led to double-digit rise in the automaker's top line.

Maruti Suzuki, India's largest passenger carmaker, is expected to clock revenue after operations of INR 387.79 billion for the December quarter, as per an average of 16 brokerage firms' estimates. The company's top line may rise 16.4% on year and 4.2% sequentially.

Kotak Institutional Equities expects the automaker's top line to increase 15% on year on the back of a 13% on-year rise in volumes in the December quarter and an increase in the average selling price of its models due to a richer product mix.

Maruti Suzuki's net profit for the December quarter is expected to be INR 36.04 billion, up 15.2% on year and 17.4% sequentially, according to an average of 16 analyst estimates.

During the September quarter, the company made a provision of INR 8.38 billion to adjust for a change in tax rate calculations, leading to a one-time impact on its net profit.

As per an average of eight analysts' estimates, the company's earnings before interest, taxes, depreciation, and amortisation is expected to be INR 45.24 billion, up 16% on year. Kotak Equities expects Maruti's operating profit to rise 7% on year, aided by an increase in volumes during the December quarter, coupled with a higher mix of sport utility vehicles and compressed natural gas-run variants.

INVENTORY

Issues over high inventory build-up impacted the passenger vehicle segment in 2024. This prompted the Federation of Automobile Dealers Associations to write to banks, asking them to exercise caution while lending to dealers.

In December, inventory levels hovered around 55–60 days, FADA said in its latest update. The association recommends an inventory level of 21 days. Yet, the average time a car stayed in the showroom hit a record high of 80 days in 2024. This prompted the carmakers to provide heavier discounts in the last quarter of the calendar year.

The higher discounting also helped in a pick-up in demand for hatchbacks in December. For Maruti Suzuki, the average discount on its models increased by 5-10% sequentially, HSBC Global Research said in a note. Analysts expect lower raw material prices and higher revenue growth to take the bite out of higher discounts, impacting the company's EBITDA margin in the December quarter.

AN OUTLIER

Maruti Suzuki's dealers sold 444,607 passenger vehicles in the December quarter, 5.7% higher than the same period a year ago. The company despatched 178,248 units to dealers in December, with record-high exports of 37,419 units. Kotak Equities expects a 2% on-year increase in the average realisation per unit in the December quarter, while KR Choksey Research expects a 3.1% on-year rise.

Analysts see Maruti Suzuki outperform its peers in the December quarter. The Maruti Suzuki stock is Motilal Oswal's top pick among automobile companies as the brokerage firm expects new launches to continue to help improve the mix and drive healthy earnings growth. Of 19 brokerage firms, 16 have a buy rating on Maruti Suzuki while three have a hold. There are no sell calls.

The company's board will meet Wednesday to announce the Oct-Dec earnings. The company reported its September quarter earnings on Oct. 29 during market hours. Between then and Monday, shares of the company have appreciated nearly 9%. Shares of Maruti Suzuki closed at INR 11,993.85 on the National Stock Exchange, up 0.2% from Friday.

Following are the Oct-Dec earnings estimates for Maruti Suzuki India Ltd. based on reports from 16 brokerage firms in descending order by the estimate of net profit:

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Edited by Subhojit Sarkar

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