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Business Standard:  December 10, 2018

New Delhi: Pace softens in FY19 after four years of double-digit expansion

The country’s biggest carmaker, Maruti Suzuki, will have to settle for a single-digit volume growth in 2018-19 fiscal year after four consecutive years of a double-digit sales expansion.

The company, which sells every second car in the world’s fifth-biggest market, India, had set a target of double-digit growth at the beginning of the year. However, a combination of factors such as Kerala floods, record high fuel prices and an increase in insurance cost impacted the demand from the second quarter onwards.

In spite of a strong 24.3 per cent volume growth in the first quarter, growth in the first half slipped sharply to 10 per cent to 975,327 units. There was a volume decline of 1.5 per cent in the second quarter. The growth rate continued to slip further. For the April-November period of the year, the company’s total volume growth is down to a single-digit figure of 7.4 per cent to 1.27 million vehicles. In the identical period of FY18, growth was as high as 14.6 per cent.

Given the 7.4 per cent growth in the April-November period, Maruti Suzuki needs to grow at a rate of at least 15 per cent in the December-March period to finish the year with a double-digit volume growth.

“I do not think a 15 per cent growth is possible in rest of the four months when the past five months saw a flat or no growth. No event can take the market to a high double-digit rate of growth. But we will still close the year with a single-digit growth,” R C Bhargava, chairman at Maruti Suzuki, told Business Standard.

A slowing growth rate at Maruti Suzuki is also a worry for the overall industry growth since the carmaker commands share of 52 per cent in domestic market.

The Suzuki-owned company managed to clock a double-digit growth for four consecutive years with the launch of blockbuster models such as Baleno, Brezza, and new Dzire. In FY18, the company’s volume had expanded by 13.4 per cent to 1.77 million units. Had it managed to grow at a pace similar in FY19, it could have well achieved a milestone of 2 million units in annual sales, ahead of 2020. “We could have got closer to 2 million units in FY19. Now it will happen in the next financial year,” said Bhargava.

The slowdown in growth is an industry-wide trend and companies are adjusting production to bring down the inventory levels at plants as well as dealerships. Manufacturers had pumped dealerships with inventory, anticipating a strong festive season, which turned out be a lacklustre one.

According to the Federation of Automobile Dealers Association (FADA), the apex association of automobile dealers, the registration of passenger vehicles (cars, vans, and utility vehicles) declined by 14 per cent to 287,717 units in the festive season of 2018 compared to the last year. As a result, dealers have been saddled with unusually high inventory levels, triggering heavy discounts to clear stocks.

Bhargava said the company would not slow down the sales network expansion in spite of a drop in growth. “India is among the fastest growing car markets of the world. Short-term blips do not matter. We remain absolutely confident of the long-term growth prospects of the market,” he added.

 

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.