Maruti Suzuki Q3 preview: Lower volumes but better margins expected from firm

Maruti Suzuki

Maruti Suzuki is expected to report a sequential fall in revenue on weaker volumes but may see some improvement in margins on price hikes and input-cost moderation when it reports its numbers of the December quarter on January 24.

The country’s biggest carmaker’s quarter-on-quarter (QoQ) revenue or sales and net profit will likely fall by 7.3-10.4 per cent and by 14.3-19 per cent but the operating margin will improve by 15-70 bps, estimates of analysts across four brokerages show.

Year on year (YoY), the numbers are likely to look much better, thanks to a low base. Both revenue and net profit are expected to rise by 15.4-17.9 per cent and 74.7-87 per cent respectively, and the operating margin is forecasted to go up by around 330 basis points (bps).

One basis point is one-hundredth of a percentage point.

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Sequentially, the passenger vehicle (PV) segment is expected to post weak growth in revenue, with the passing of the festival season and prices hiked by the original equipment manufacturers (OEMs).

Within the PV segment, the “demand for entry segment continued to remain weak” in the quarter ending December, according to analysts at Nirmal Bang.

“We expect Maruti’s earnings to decline by 8 percent QoQ on account of 10 percent QoQ volume decline,” they wrote in their Q3 preview report.

However, analysts expect the auto major to see 70bps margin expansion on QoQ basis, “led by operating leverage benefits and 110bps GM expansion on QoQ basis, driven by a favourable currency, price hikes and mix improvement”.

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Analysts at Motilal Oswal said margins for the automobile sector will improve for the second quarter in a row, with companies under their coverage seeing an Ebitda margin expansion of 40bps sequentially and growth of 160bps annually.

This will be “driven by benefits of RM (raw material) cost moderation… 3QFY23 will be the first quarter to see benefits of lower commodity prices, which, along with benefits of favorable FX, would drive gross margin expansion of 100bp YoY (+70bp QoQ),” they wrote in their India strategy report.

They, too, said that the demand for automobiles remained largely intact across segments “except for entry-level PV segment”. The brokerage has a “buy” call on the stock.

The stock closed 0.18 percent lower on the National Stock Exchange at Rs 8,425.