Japanese parent revises FY20 outlook: Suzuki Motor forecasts Maruti sales to fall 20%
Maruti’s 25% drop in volumes in the 1st half ended Sept has pulled Suzuki’s global sales down by 17%.
Maruti Suzuki’s 25% drop in cumulative volumes in the first half ended September quarter has pulled down Suzuki’s global sales by 17%. The Japanese parent is estimating a 13.2% decline in volumes for the full year despite a mild recovery by its Indian arm in October.
SMC has also cut its revenue, operating income and net income forecast for the current fiscal by 10.3%, 39.4% and 30%, respectively, after the first quarter results. It has pegged the automobile volume at 2.84 million, a decline of 14.7% from the previous outlook. Motorcycle sales in FY20 are seen at 1.77 million, 3% down from what was projected earlier.
Maruti is estimated to sell over 1.5 million units in FY20 against a target of over 2 million vehicles. Soon after the forecast, Maruti Suzuki chairman RC Bhargava told ET in an interview that managing the transition from BS-IV to BS-VI emission norms in the coming four-to-five months will be critical and the demand scenario is expected to remain highly uncertain. “While Maruti Suzuki posted growth in wholesale in October, much of the market had seen a decline. So far in the first six months of this financial year, we have registered a decline of 25%,” Bhargava said.
No Change in Capex Plan
“I don’t expect a major change and forecast of Suzuki on India’s growth to be -20% seems fairly close,” said Bhargava.
SMC’s move has once again highlighted the intense struggle carmakers are facing in India despite a relatively better performance due to festive sales in October. The biggest worry for Maruti Suzuki is that its bread and butter — the mini car segment has seen a 53% decline to about one lakh units. With the diesel phasing out, the Indian subsidiary will have an uphill task to make up for another 3-5 lakh units in the coming 12-18 months.
Unlike in the past when Maruti Suzuki managed to buck a sluggish market environment, the company in the current fiscal year has borne the brunt of a slowing economy and rising cost of ownership which was further worsened by liquidity squeeze.
Maruti Suzuki saw its monthly sales drop from 1.6 lakh to less than 1 lakh units over the last few months. The automaker’s market share has also come down from a peak of 55% to 50%. As new entrants like Kia and MG Motor grab share in the falling market, the lack of diesel engines and limited sports utility vehicle (SUV) portfolio will pose a challenge to the company as sector veers toward more utility vehicles over compact cars. The market, however, appears to have faith in the leader Maruti that will retain its capex plans of Rs 4,500 crore this year.
Maruti Suzuki is trading at 30 times of its projected 12 months earnings, nearly double of its parent SMC, according to Bloomberg. Maruti Suzuki stock rose 38% in the past three months, while its parent gained 28% in the same period. The share of India’s operation in Suzuki global sales too fell to 47.94% in the September quarter compared with 54.05% in the year-ago period.
SMC expects sales volumes of Asia, which accounts for 61% of Suzuki’s total global automobile volume, to contract 18.7%.