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Maruti Suzuki India Ltd will retain its ₹Rs 2.7 billion capital expenditure plan for this financial year, undeterred by the turmoil caused by the coronavirus outbreak that has affected vehicle sales and profits.
India’s largest automaker also hopes to reopen its second factory at Gurugram in Haryana soon, after the government further eases the national blockade imposed in late March. Maruti started limited operations at its Manesar plant in Haryana on May 12, and some of its showrooms and service centers have also been operational since last week.
The pandemic and covid-19 blocks affected the Suzuki Motor Corp. unit as its net profit fell 28% in the March quarter to ₹Rs 1,291.7 million ₹Rs 1,795.6 million a year ago. The profit was marginally more than the ₹1,273.40 crore estimated at Bloomberg analyst survey. Sales during the quarter fell 17% to ₹Rs 17,186.7 million due to a 16% drop in vehicle sales to 385,025 units.
Operating income, or earnings before interest, taxes, depreciation and amortization (Ebitda), fell 33.9% yoy to ₹1,546 crore in the last quarter, while the operating margin contracted 241 basis points to 8.5% due to an increase in general expenses.
R.C. Bhargava, president of Maruti Suzuki, said the company will try to gradually increase vehicle production despite an increase in fixed costs due to additional security protocols.
“We are planning for the long term, and that is why we cannot afford to stop investments related to capital spending,” he said. “Migration of labor from cities will affect our suppliers as they hire far more contract labor than we do. So it will somehow affect our production.”
Bhargava did not elaborate on the investment plans. According to analysts, the company will spend capital on product development, plant expansion and the purchase of real estate for dealers.
Automakers across the country have halted operations since March 22 to comply with government directives amid the covid-19 pandemic. This severely affected operations at automakers and their parts suppliers, as well as dealers.
To boost sales amid weak consumer sentiment fueled by the pandemic, Maruti increased its vehicle discount by 26% from a year earlier in the March quarter to ₹19,051 per vehicle. However, the discounts were sequentially lower as Maruti had depleted its inventory of Bharat Stage-IV compliant vehicles prior to February and was selling only BS-VI vehicles.
India’s auto industry has already been hit by low consumer demand amid a slowdown and higher vehicle prices due to new, stricter emissions and safety standards.
For the year through March, Maruti reported a 25% drop in net earnings to ₹Rs 5,650.6 million and a 12% drop in revenue to ₹Rs 75,610.6 million.
The moderate quarterly earnings were due to negative operating leverage amid the shutdown, but Maruti would emerge as a stronger company eventually, compared to its peers, as many of them would find it difficult to survive in the future, said Mitul Shah, vice president of research. , Dependency values.
“The adverse product mix, increased advertising and other expenses affected the operating margin,” he said. However, its strong balance sheet with large cash and cash equivalents of ₹Rs 30 billion would help you in terms of supporting the value chain system associated with it during this challenging environment, “he said.
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