Maruti Suzuki India Ltd will retain its 2,700 crore capital expenditure plan for this financial year, undeterred by the turmoil caused by the coronavirus outbreak that has dented vehicle sales and earnings.

India’s largest carmaker also expects to soon reopen its second factory in Gurugram in Haryana, following further easing by the government of a nationwide lockdown imposed late-March. Maruti began limited operations at its Manesar plant in Haryana on 12 May and some of its showrooms and service centres also begun functioning since last week.

The covid-19 pandemic and lockdowns hit the Suzuki Motor Corp. unit as its net profit plunged 28% in the March quarter to 1,291.7 crore from 1,795.6 crore a year ago. Profit was marginally more than the 1,273.40 crore estimate in a Bloomberg survey of analysts. Sales during the quarter fell 17% to 17,186.7 crore due to a 16% fall in vehicle sales to 385,025 units.

Operating profit, or the earnings before interest, taxes, depreciation and amortization (Ebitda), fell 33.9% year-on-year to 1,546 crore last quarter while operating margin contracted 241 basis points to 8.5% due to an increase in overall expenses.

R.C. Bhargava, chairman of Maruti Suzuki, said the company will try to gradually ramp up vehicle production despite an increase in fixed costs due to additional safety protocols.

“We are planning for the long term, and that’s why we cannot afford to stop capex-related investments,” he said. “The migration of labour from cities will affect our vendors since they hire much more contractual labour force than us. So, it will somehow impact our production.”

Bhargava did not elaborate on the investment plans. According to analysts, the company will spend the capital on product development, expansion of plants and buying real estate for dealerships.

Automakers across the country halted operations since 22 March to abide by government directives amid the covid-19 pandemic. This severely affected operations at the automakers and their parts suppliers as well as dealers.

To push sales amid weak consumer sentiment fuelled by the pandemic, Maruti increased its discount per vehicle by 26% from a year earlier in the March quarter to 19,051 per vehicle. The discounts though were lower sequentially as Maruti had exhausted its inventory of Bharat Stage-IV compliant vehicles before February and was selling only BS-VI vehicles.

India’s automobile industry was already impacted by slack consumer demand amid a slowdown and higher vehicle prices due to stricter new emissions and safety norms.

For the year to March, Maruti reported a 25% drop in net profit to 5,650.6 crore and a 12% drop in revenue at 75,610.6 crore

The subdued quarterly earnings were due to negative operating leverage amid the lockdown but Maruti would emerge as a stronger company eventually, compared to peers, as many of them would find it tough to survive going forward, said Mitul Shah, vice-president, research, Reliance Securities.

“Adverse product mix, higher advertising and other expenses took a toll on operating margin,” he said. “However, its strong balance sheet with huge cash and cash equivalents of 30,000 crore would help it in terms of providing support to the value chain system associated with it during this challenging environment,” he said.

News Source: Livemint


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