Will good times return at Maruti Suzuki in FY13?
Maruti Suzuki's sales rose 3.3% in April at 1,25,952 units, up for the third consecutive month. But things haven't been as rosy for Maruti Suzuki for most of the last fiscal year. Demand for passenger cars slumped after a sharp rise in interest rates and several rounds of petrol price hikes.
April 02, 2012 / 20:08 IST
Moneycontrol Bureau
Maruti Suzuki's sales rose 3.3% in April at 1,25,952 units, up for the third consecutive month.But things haven't been as rosy for the India's top passenger car maker for most of the last fiscal year. Demand for passenger cars slumped after a sharp rise in interest rates and several rounds of petrol price hikes. That coupled with a labour strike at its Manesar plant and appreciating yen meant it was rather a bumpy ride. Its total sales slipped 11% in 2011-12 (April-March)to 11,33,695 units.But has the potholed road changed to a smooth highway stretching ahead?The workers strike at Manesar hit production of the Swift hatchback and DZire sedan, among the two top selling cars in the market. Maruti Suzuki lost production of over 80,000 units and a revenue loss of around Rs 2,500 crore due to the strike that stretched over three phases. Things now seem to be getting back on track with the labour issues behind it. Launch of new Swift and DZire has also boosted demand. Demand for diesel powered Swift and DZire stretches to 6 months.The company has also tried to address the issue of diesel engine shortage. In Jan it signed a deal with Italian auto maker Fiat to source up to 1 lakh 1.3 litre diesel engines per year for three years.Maruti Suzuki also announced last month that it will invest Rs 1,700 crore to expand its diesel engine capacity in Gurgaon.This, over a period, is expected to help it boost production of its diesel powered Ritz, Swift and DZire and thus lower their waiting period.Analysts expect car sales will pickup further in fiscal 2013, once interest rates fall, and the company further launches new models."Increase in purchasing power, lower cost of finance in the second half of FY13 and catching up on lost sales will drive volume. Additionally launch of new models and entry into new segment (MPV with launch of Ertiga), and supply of diesel variants of existing models will boost sales to 1.28 million in FY13," said Umesh Karne and Manashwi Banerjee of Brics Securities in a recent report.Brics has raised Maruti Suzuki's volume estimates by 8% to 13 lakh for 2012-13 and by 10% to 15 lakh for 2013-14.Apart from volume growth, margin is also likely to expand 62 bps to 10.9% in fiscal 2013, and by 72 bps to 11.6% in fiscal 2014, say Karne and Banerjee.The analysts upgraded the stock to "buy" and also raised the target price to Rs 1,509 from Rs 1,232.However, its mini car sales remain on a slippery slope. In March its mini car sales, which include 800, Alto, A-Star and Wagon R, fell 10%. Over the last fiscal, mini car sales were down 14% to 4,91,389 units.With petrol price set to be hiked further, sales are unlikely to improve much as competition has also intensified in small cars.Analysts say sales of small cars will remain subdued in the near future. But for Maruti, the launch of the new multi-utility vehicle Ertiga, in the next few months, along with continued demand for Swift and DZire, will give a sales boost.Maruti Suzuki shares closed down 0.9% at Rs 1,338.55 on NSE on Monday. The stock is up 7% in the last fiscal year, compared with the wider Nifty is down 9% in the same period.Nachiket Kelkar
nachiket.kelkar@moneycontrol.com
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