Maruti Suzuki: Tough ride ahead!

Shares of Maruti Suzuki (India) rallied almost 3% on NSE as demand revival prospect buoyed investors confidence and encouraged them to ignore India’s largest car maker reporting its first quarterly loss in 17 years.

On Wednesday, Maruti Suzuki reported a standalone net loss of Rs 249.4 crore in the quarter ended June 2020 against profit of Rs 1,435.5 crore a year ago, hurt by Covid-19-induced lockdown.

It was the first time since its listing in 2003 that the auto major reported a quarterly loss.

Sales plunged to Rs 3,677.5 crore, from Rs 18,735.2 crore a year ago.

Such was the impact of Covid-19 pandemic induced lockdown that car production in the whole quarter was equivalent to just about two weeks’ of regular working

Apparently, it sold a total of 76,599 vehicles during the quarter, sharply lower from 4,02,594 in the same quarter a year ago. Sales in the domestic market stood at 67,027 units, while exports were at 9,572 units

It reported Ebitda (earnings before interest, tax, depreciation, and ammortisation) loss of Rs 863.4 crore as compared to Rs 2,047.8 crore profit in the corresponding quarter last year. Ebitda margin stood at -21.05% after declining 31.44% on a year basis

Meanwhile, its net loss in the quarter was partially off-set by lower operating expenses and higher fair-value gain on the invested surplus

Maruti Suzuki has performed sensitivity analysis on the assumptions used and based on current estimates and expects the carrying amount of these assets will be recovered.

The company management also expects the impact of COVID-19 on its financial results to differ from the estimated as at the date of approval of these financial results

In the short to medium term, shift towards personal mobility in response to health concerns around public transport are a supportive factor for the PV space. This trend can benefit MSIL, especially given its leadership in passenger car sub-segment as initial consumer trends revealing greater interest in entry level cars

Also, replacement demand domestically has slowed down as consumers tend to hold on to their existing vehicles due to low usage/hit on income, thereby impacting new car sales in near term

While MSIL is a market leader in the domestic PV segment and has very strong balance sheet comfort, the prevailing difficult demand scenario looks tough and growth is likely to come back only from FY22 onwards.

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