Maruti Suzuki India Limited's Q2 and FY2024-25 financial results reflect a unique balancing act. While the company has managed to stabilise inventories, it faces concerning trends in the lower car sales bracket, specifically in the sub-INR 10 lakh segment.
Chairman R C Bhargava expressed concerns over slowing demand in the entry-level market, which affects both Maruti and the broader industry. Despite no major disruptions from semiconductor shortages or pandemic-related challenges, the growth rate has significantly slowed, a trend Bhargava attributes largely to weakened affordability among lower-income consumers.
Rising Demand For SUVs Despite Entry-Level Segment Struggles
Despite the challenges in the entry-level market demand for Maruti's SUV range has been relatively strong, with the company capturing a market share of 27% in the segment. Although competitors are aggressively expanding their SUV portfolios, Maruti has continued to make strides in reinforcing its presence in this competitive market. Bhargava underscored the shift in consumer preference towards more premium offerings and SUVs but noted that the declining interest in cars under INR 10 lakh, which once constituted around 80% of Maruti’s volume, remains a critical concern. This shift has forced Maruti to re-evaluate its strategy as affordability becomes a pressing issue, impacting the market’s traditional growth feeder segment.
Inventories Align With Demand As Discounting Normalises
Inventory control has been a central focus for Maruti, particularly in recent months. By adjusting production schedules to stabilise stock levels, Maruti managed to reduce the inventory burden on dealers. With retail sales rising 14% during the festive period, its inventory now averages around 30 days. This adjustment is expected to lessen the need for extensive discounting, a common practice when inventories are high.
Maruti’s R&D focus has also seen a shift, with development efforts for internal combustion engine (ICE) vehicles increasingly being handled by its domestic teams, while electric vehicle (EV) development remains primarily with Suzuki. The company plans to expand R&D resources further and has hinted at upcoming announcements regarding new production sites, highlighting a continued investment in growth and localisation efforts.
Record Net Sales & Mixed Profit Indicators
Maruti Suzuki’s financial highlights for Q2 indicate robust performance overall, with the company achieving its highest-ever net sales, reaching INR 355,891 million for the quarter. Profit Before Tax (PBT) also saw a commendable increase of 6.3%, amounting to INR 51,005 million, representing the company’s best-ever quarterly PBT. However, Net Profit (PAT) declined from INR 37,165 million in Q2 FY23-24 to INR 30,692 million this quarter, a decrease largely attributed to tax rate adjustments impacting long-term capital gains on mutual funds.
While total domestic vehicle sales were reported at 463,834 units, marking a 3.9% decline compared to the previous year, export volumes saw a notable boost, up by 12.1%, totalling 77,716 units for Q2. In the half-year results, domestic market sales dropped marginally by 0.3%, while export sales recorded an impressive 11.9% growth. Bhargava highlighted the importance of focusing on retail rather than wholesale sales, explaining that the company reduced dispatches to maintain a balanced inventory.
While the company successfully managed inventories and achieved record net sales, the declining demand in the under-INR 10 lakh segment casts a shadow on future growth potential. The slowdown in this segment, coupled with affordability issues, signals a concerning shift in market dynamics. Moving forward, Maruti’s strategy will likely involve balancing expansion in premium segments, capitalising on SUV demand, and addressing challenges in the lower-income market to maintain its foothold as India’s leading automaker.
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