Suzuki forecasts Maruti to drop by 20% in FY-20, to be a drag on global sales

MUMBAI: Suzuki Motor Corporation has changed its sales forecast for Indian subsidiary Maruti Suzuki to a whopping 20% decline in FY20 from a tepid 4% growth after a dismal first half sales performance in Asia’s third-biggest car market.

Maruti Suzuki’s 25% drop in cumulative volumes in the first half ended September has pulled down Suzuki’s global sales by 17% and the Japanese car maker is estimating 13.2% drop in volumes for the full year despite a mild recovery by Maruti in October.

The Japanese carmaker also cut its revenue, operating income and net income forecast for the current fiscal by 10.3%, 39.4% and 30% respectively, compared with its estimate after the first-quarter results. SMC sees automobile and motorcycle volume of 2.84 million and 1.77 million for the current fiscal year, a decline of 14.7% and 3% from the previous forecast.

Maruti is now expected to sell just over 1.5 million units in FY-20 versus its target of selling over 2 million vehicles by FY2020.

R C Bhargava, chairman, Maruti Suzuki in an interview to ET soon after Suzuki’s announcement said that managing the transition from BS-IV to BS-VI emission norms in the coming four to five months will be critical and the demand scenario is expected to be highly uncertain.

“While the Maruti Suzuki posted growth in wholesale in October, much of the market had seen a decline. So far in the first six months of this financial year, we have registered a decline of 25%, so I don’t expect a major change and forecast of Suzuki on India’s growth to be -20% seems fairly close,” added Bhargava.

Suzuki’s announcement has once again highlighted the intense struggle carmakers are facing in India despite a relatively better performance due to festival sales in October. The biggest worry for Maruti Suzuki is that its bread and better mini car segment has seen a 53% decline to just about one lakh units. With the diesel phase-out, Maruti Suzuki will have an uphill task to make up for another 3-5 lakh units in the coming 12-18 months. Yet the market has faith in the market leader. Maruti Suzuki is trading at 30 times of its projected twelve months earnings, nearly double of its parent SMC, according to Bloomberg. Maruti’s Suzuki stock rose 38% in the past three months, while its parent’s stock gained 28% in the same period.

The share of India’s operation in Suzuki global sales too fell to 47.94% in the September quarter compared with 54.05% in the year-ago period.

SMC expects sales volumes of Asia to contract 18.7% for the current fiscal year, which accounts for 61% of total global automobile volume.