Maruti Suzuki Company performance review based on Q3 2019/19 Result (Why Maruti Stock is falling?)
The Q3 2018-19 results of Maruti Suzuki were released/declared on 25th January 2019. The results are a little disappointing which is the main the reason behind the stock price of Maruti Suzuki falling.
In India, in the Indian auto Industry sector analysis (4-wheeler/cars) industry, Maruti Suzuki has a nice penetration in the market. It has a market share of almost 50%. This penetration was growing the last decade but now has become stagnant, which is obvious as 50% share is huge and maintaining that with the increasing international competition is very commendable.
Share Price Movement
From its 52-week high of almost Rs. 10,000 in 2018, the stock is 35% down at Rs 6,500 from its peak, currently. Before the result the stock was trading at around Rs. 7,500. And after the result it hit the levels of Rs. 6,500 and is currently trading at the same level.
As compared with the results of Q3FY2017-18: –
- Sales Volume – The total number of cars sold in this quarter were 4,28,643. This number is down by 0.6% in YoY growth from the same quarter last year (Q3FY2017-18). Sales Volume is flat.
- Net Sales – The net sales in this quarter were Rs. 18,926 crores. This number is down by 0.1% in YoY growth from the same quarter last year (Q3FY2017-18). Net sales is also flat and not a very great growth in YoY basis.
- Profit Before Taxes (PBT) – The PBT in this quarter was Rs. 2,060 crores. This number is down by 19.8% in YoY growth from the same quarter last year (Q3FY2017-18). A very huge fall in these numbers.
- Profit After Tax (PAT) – The PAT in this quarter was Rs. 1,489 crores. This number is down by 17.2% in YoY growth from the same quarter last year (Q3FY2017-18). The High fall in the numbers of PBT and PAT are the reasons why the market has shown negative reaction towards Maruti Suzuki
Reasons behind the bad Q3FY2018-19 Results
The Net sales figures were flat, still the PBT and PAT figures were very low. Why is it so? The reason behind can be traced out as follows:
- Material Cost – The material cost (the cost required to make a car) which was 70.3% in the last year, has now become 74%. The material cost has increased owing to the increase in the commodity prices. And this increase in the material cost has an direct effect on the profitability of the company.
- Enquiry Cost – The value which was 3.6% of the total net sales in the last year, has now become 4.7%. Sales didn’t increase but the cost on it increased.
- Other Expenses – Other expenses included expenses such as marketing expenses. These expenses have increase from 11.9% in the last to 15% currently.
These are the 3 expenses which made the major dents in the profits of the company.
- PBT Margin – The PBT margin has come down to 10.9% of the total net sales in this quarter from 13.6% in the last year.
- PAT Margin – The PAT margin has come down to 7.9% of the total net sales in this quarter from 9.5% in the last year.
- It can be clearly seen that the costs have increased, and the increased costs have directly impacted the profit margins of the company.
Negative Factors that Impacted the Q3FY2018-19 Result
- Commodity Prices – As mentioned above the commodity prices have increased and there is nothing one can do about it as the company has to buy the commodity in any case.
- Higher Selling Expenses – A lot of marketing has to be done and a lot of incentives has to be given because of the competition. The increased selling expenses are having direct impact on the margins.
- Adverse Foreign Exchange – The equation of Dollar and Rupee. In the last movements of Dollar-Rupee, the dollar has grown stronger. This also has impact on the margins as whatever commodities are bought, are bought in USD.
As compared with the results of Q2FY2018-19: –
These numbers are even more disappointing.
- Sales Volume – The total number of cars sold in this quarter were 4,28,643. This number is down by 11.9% in QoQ growth from the last quarter same year (Q2FY2018-19)
- Net Sales – The net sales in this quarter were Rs. 18,926 crores. This number is down by 12.2% in QoQ growth from the last quarter same year (Q2FY2018-19)
- Profit Before Taxes (PBT) – The PBT in this quarter was Rs. 2,060 crores. This number is down by 35.8% in QoQ growth from the last quarter same year (Q2FY2018-19 – Rs. 3,211 crores).
- Profit After Tax (PAT) – The PAT in this quarter was Rs. 1,489 crores. This number is down by 33.5% in QoQ growth from the same quarter last year (Q2FY2018-19 – Rs. 2,240 crores).
- This has been a very negative quarter for the company.
- Maruti Suzuki claims that traditionally Q3 has always been weak because of which such bad numbers.
- The market has obviously shown it negative reaction towards the stock of the company because of its disappointing Q3 results.
- Fundamentally there is no problem in the company. The company is running very pro-actively.
- The market share and the track record of the company are also very nice.
- There is an overall downward trend going on in the automobile industry.
- There are some factors which will never be in the hands of the company like the commodity prices or the dollar-rupee movements.
- The future outlook of the company looks good if all the things work out in their favour and as per their planning.
There are some positive things that can happen.
- Strong product portfolio – In the arrangements made with Toyota, Maruti Suzuki has increasing focus on Electronic Vehicles. A positive traction is expected there.
- Interest Rates – Decreasing interest rates will be very good for sales.
- Commodity Prices – These prices seem to be settling now. Because of the trade wars of China with USA, the steel prices have decreased.
- USD-INR relation – The movements in their relation will also stable down if the factors affecting the are controlled properly.
- Other factors such as penetration, major market share, brand value, and mind share will also be advantageous to Maruti Suzuki.
- The numbers that are used are approximate and have been rounded for presentation purposes.
- No suggestions are been made as to whether this is a good or bad company/stock.
- No suggestions are also being made to go and immediately buy the stocks of this company or go invest in the stock market.