Maruti Suzuki India Ltd’s stock fell 2.2% as its December quarter (Q3FY20) results missed the euphoric expectations of investors. The big disappointment came on operating performance.

Indeed, the earnings before interest, tax, depreciation and amortisation (Ebitda) rose 9% year-on-year (yoy) to Rs2,102 crore. But this was way below Bloomberg’s 20-broker consensus that expected a double-digit Ebitda growth at Rs2,339 crore. Expectations on the street rose after the firm maintained a sales increase of 2% yoy, even after the festive season was over. Further, it was among the first to launch BS-6 vehicles and continue to clock a sales growth.

Therefore, even the 5% yoy growth in net revenue was only moderate and failed to impress the street. According to Bharat Gianani, analyst, Sharekhan, “while realisations grew 3% yoy, it was lower than the anticipated growth of 9%.Higher than anticipated discounting and transition from BS4 to BS6 norms impacted the realisations."

Lower realisations also imply a weak product mix, which was quite contrary to what the street had foreseen. Another reason could be higher discounts and marketing expenses that impacted profitability. Ebitda margin of 10.2% was a tad higher yoy but lower than Bloomberg’s estimate of 11.2%. This raises concerns on traction in operating performance in the coming quarters when BS-6 launches gain traction.

Perhaps, this why the company has announced a price hike of 0-4.7% on Monday across its vehicles citing increase in input costs.

Most brokerage reports in the preview reports suggested that the dark clouds of subdued sales and operating performance seen for several quarters are behind Maruti.

Other income at ₹784 crore declined by 15% yoy due to lower fair value gains on invested surplus. Net profit of Rs1,564.8 crore was 5% higher yoy.
Although Maruti’s sales, which have a significant dependence on rural markets are likely to improve in the months ahead, Q3 results raises concerns on whether higher sales would translate in better profitability and return for the investor in the near term


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