Q1 COMMENT. Maruti Suzuki: Good volume growth, margin pressures

Like how Maruti Suzuki brushed off the effect of demonetisation to record a volume growth of 15 per cent in the January-March 2017 period, the company recorded good volume growth of 13.2 per cent in the quarter ended June 2017, despite the disruption caused by the GST transition.

Revenues grew at 15.6 per cent – about 2.4 percentage points higher than volumes — to ₹19,364 crore.

This growth was helped by improvement in average realisations due to a superior product mix.

Thanks to higher segment vehicles such as the Vitara Brezza, Baleno, Ciaz and S-Cross, average realisation per vehicle moved up from ₹4.8 lakh in the same period last year to ₹4.9 lakh now.

About 15.5 per cent of the volumes came from higher priced utility vehicles such as the Brezza and S-Cross, compared with 12.2 per cent last year. An all-new Dzire was launched in May.

But the double-digit growth in the topline did not carry forward to the bottom line because of pressures at the operating level.

Like other auto manufacturers, the company faced input cost pressures. Raw material costs as a percentage of sales rose by 270 basis points over last year to 71.6 per cent now.

Besides, compensation to dealers for losses due to GST transition and higher marketing expenses also took a toll on the operating margins, which came in at 11.8 per cent vis-à-vis 13 per cent last year.

Though other income grew by about 40 per cent to ₹680 crore, higher taxes suppressed the profits.

Net profit grew just by 4.4 per cent to ₹1,556 crore.

Even as commodity prices may be cooling off, operating margins may continue to lose a bit of sheen as the company increasingly sources fully built vehicles from Suzuki’s Gujarat plant, which became operational a few months ago.

In the current quarter, purchase of stock-in-trade jumped by 150 per cent to ₹2,146 crore.

However, on the demand front, with both rural and urban consumption looking up, the company is expected to continue post healthy volumes in the months to come.

It has recently cut prices across models by up to 3 per cent to pass on GST benefits.