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Maruti Suzuki says double digit growth in FY19 unrealistic

A tepid festive season that spanned over two months from October to November due to a variety of factors like liquidity crunch, increase in cost of insurance, high fuel and interest rates, left the company staring at a protracted slowdown.

Sumant Banerji   New Delhi     Last Updated: December 19, 2018  | 22:36 IST
Maruti Suzuki says double digit growth in FY19 unrealistic

After enduring its worst festive season in nearly five years, India's largest carmaker Maruti Suzuki India Ltd on Wednesday said it would be unrealistic to expect a double digit growth in fiscal year (FY) 2018/19, something it had targeted at the start of the year in April.

The company that accounts for one of every two passenger vehicles sold in the country had started the year with a bang posting nearly 26 per cent growth in sales in the domestic market in the first quarter (April-June 2018) but sales declined by 0.44 per cent in the second quarter (July-September) as a slowdown gripped the domestic automobile industry. A tepid festive season that spanned over two months from October to November due to a variety of factors like liquidity crunch, increase in cost of insurance, high fuel and interest rates, left the company staring at a protracted slowdown.

"We registered double digit growth in the first half of the year but the third quarter has been tough. We are targeting flat sales in this quarter," said R C Bhargava, chairman, Maruti Suzuki India Ltd. "In the last quarter (Jan-March) there will be some growth--5-6 per cent that will put the full year figure at 8 per cent. We will of course strive for a double digit growth but it will be tough."

The slowdown in the industry has been sudden. The initial ominous signs came in the first week of August when heavy rains flattened Kerala this year. Onam, one of the state's biggest festivals, followed by Ganesh Chaturthi in the West, and Navratri and Diwali in the North marks the beginning of a near three-month long spell of good sales for automobile companies in the country. The natural calamity, thus, just ahead of the festivals was an early warning of what was in store.

While the calamity in Kerala was a one-off, other more fundamental factors were also adverse. Crude oil prices started rising from March onwards and went up by over 45 per cent year-on-year between April-October 2018 as compared to the same period last year. Between April and October this year alone, retail prices of petrol went up by over 11 per cent, a sharp increase for a six month period. Interest rates also went up by 25 basis points in the first half of this fiscal over last year.

Further, change in regulations in insurance that made payment of three-year premium in the first year of purchase for third party liability mandatory while increasing personal accident cover (PAC) from Rs 2 lakh to Rs 15 lakh led to an increase of Rs 6,000 (Rs 4,500 if PAC is opted for one year) for even an entry-level car such as the Maruti Alto. All these factors combined took the wind out of the growth story of the automobile industry. According to Federation of Automobile Dealers Association, retail sale of passenger vehicles during the 42-day period of festive season between October 10 and November 20 this year, declined by 14 per cent compared to the festive season of 2017.   

"The situation looks to be improving gradually. The RBI did not raise interest rates on December 5, which is a positive. Rupee has also appreciated a bit and oil prices are coming down. But I suppose there will be a lag before it changes the overall sentiment," said Kenichi Ayukawa, managing director and CEO, MSIL. "I think the third and fourth quarters may still be challenging for us. It will be very difficult for the industry as a whole to meet the growth levels of FY 2018 during ongoing fiscal year. We ourselves will try to do that but it will not be easy. Of course, new models help and we just launched the new Ertiga but overall demand is declining so even with new models it is not easy."

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