Q3 earnings: Other income boosts Maruti’s profit up 24%

Maruti Suzuki’s profits for the three months to December 2020 grew 24.1% year-on-year to Rs 1,941 crore but failed to impress the Street. The bottomline comes off a low base and was bumped up by a 27% rise in other income of Rs 994 crore.

The stock lost value on Thursday, closing 3.56% lower at Rs 7,586.25 on the BSE. Although revenue growth was a good 13.2% y-o-y at Rs 23,458 crore, in line with estimates, a sharp increase in raw material prices pressured profitability. Raw material costs rose 180 basis points during the quarter and were not adequately offset by the gains from cost cuts.

With the product mix remaining skewed in favour of low-end cars, the Ebitda (earnings before interest, tax, depreciation and amortisation) margin declined 50 basis points y-o-y to 9.5%; the Ebitda increased by a modest 6% y-o-y to Rs 2,226 crore, on account of increases in commodity prices and adverse foreign exchange movement.

The results need to be viewed against the backdrop of a 16% fall in sales volumes for the company in FY20 and about 18% for the industry, the management observed.

Sales during the quarter were driven by Navratra and Diwali on the back of a 13.4% y-o-y in total volumes at 4,95,897 vehicles. Analysts noted much of the volumes cames from low-priced entry level vehicles; Maruti sold 96,700 vehicles during the Navratra. Analysts believe that the sharp rise in material costs could hurt the company going forward.

Maruti Suzuki’s chairman RC Bhargava had dismissed talk of a rebound post the Q2FY21 results pointing out the volumes had been worse than in Q2FY19. Bhargava had also expressed scepticism on the demand sustaining beyond December after the festive demand had been met and demand for personal vehicles satiated. “There is still not much clarity on urban demand and incomes,” Bhargava had said.

With auto sales for January to be announced next week, there is cautious optimism among analysts as the demand momentum has been good post the festive season. Also, dealers inventory has been low. Auto sales numbers have been on a recovering trend since June, showing a robust growth in the October-December period as well. Maruti has been making up lost ground by recording sales in line with its traditional monthly average sales numbers of 1.5 lakh units.