Maruti's top boss Bhargava is worried about muted buyer interest for vehicles priced below Rs 10 lakh

While the slowdown in cars sales in the first half of this fiscal is not a cause of concern, the continued decline in demand for vehicles priced below Rs 10 lakh is worrisome, Maruti Suzuki Chairman R C Bhargava said, adding, unless the lower end of the market grows there will be less feeders to the premium segment.

“The sub-Rs 10 lakh car segment has witnessed a sharp decline in recent years, and if this segment does not grow, there will gradually be less feeders for upper segments as well,” Bhargava said in a post earnings call.

Bhargava informed as much as 80% of the cars sold in the country in FY19 were priced under Rs 10 lakh. He said, “If 80% of what used to be the market is declining, how will the other make up for the rest of the growth?”

Car sales in the local market grew by a meagre 0.5% from a year earlier to 2.08 million units in the fiscal first half ended September, showed data issued by industry body Society of Indian Automobile Manufacturers (SIAM).

Bhargava said lack of affordability is the key reason for the drop in car sales in the sub-Rs 10 lakh segment.

“The industry is somewhat slower that what has been in the past. This is despite the fact that there are no shortages of semiconductors or impact of Covid or any such thing. It’s just that demand for cars has slowed down. But despite that Maruti’s results show that we have performed very well. Our profitability is good. Our turnover is the highest ever. We don’t have enough data to tell us whether this slowdown (in the local market) would last for a long time”, he said.

The automaker is banking on the festival season to boost retail sales. Bhargava said, “We are expecting roughly 14% growth in retail sales in the festive season and that will help reduce inventory levels.” Maruti Suzuki expects to have stocks for about 30 days in the channel by the end of the October.

Maruti Suzuki’s wholesales declined by 3.9% to 463,834 units in the three months to September 30. The rationalisation of dispatches from factories, along with strong retails in the ongoing festive season is expected to bring down stocks to a healthy level. “If you create large inventories, you will have to give more discounts to clear that. If you get inventories down to a much more reasonable level, the pressure to give discounts is not there,” Bhargava said.

Overall, the country’s largest carmaker Maruti Suzuki expects passenger vehicle sales to grow 3-4% in the ongoing fiscal year, in line with the outlook shared by industry body Society of Indian Automobile Manufacturers (SIAM). While rural demand is strong, the urban market is under pressure, Partho Banerjee, senior executive officer (Marketing and Sales), Maruti Suzuki said.

Last quarter, Maruti Suzuki missed street estimates to post a decline of 17.4% in net profit at Rs 3,102 crore. “PAT (profit after tax) is lower because of the taxation change that was made in the Budget in terms of indexation benefit which was available to long-term debt mutual funds. That has resulted in us having to make a provision of Rs 837 crore,” Bhargava said.

During the quarter under consideration, the company reported net sales of Rs 35,589.1 crore, compared to Rs 35,535.1 crore posted in the year-ago period. Motilal Oswal had expected the company to report 0.5% decline in net profit at Rs 3,697.6 crore.