Maruti Suzuki slips 2%, hits over two-year low amid earnings concerns

Shares of Maruti Suzuki India (MSIL) hit an over two-year low of Rs 5,790, down 2 per cent, in intra-day trade on Friday. The passenger vehicle company's stock has slipped 6 per cent in the past three trading days on the BSE, on concerns of weak earnings amid a low volume in the April-June quarter (Q1FY20), and is trading at its lowest level since January 25, 2017, when it touched Rs 5,718 in intra-day deal.

In the past three months, MSIL has underperformed the market by falling 22 per cent, as compared to 1 per cent decline in the S&P BSE Sensex. It corrected 42 per cent from its 52-week high level of Rs 9,923 hit on July 24 last year.

MSIL volumes declined around 18 per cent year on year (YoY) and down around 12 per cent quarter on quarter (QoQ). Taking slightly higher realisations YoY as well as QoQ on account of BS VI / safety norm complaint variants launched during the quarter, MSIL is expected to report 15 per cent YoY / 11 per cent QoQ decline in revenues over Q1FY20.

Given the slight relief in commodity prices as well as favourable currency movement, margins are expected to be at 10.5 per cent, flat QoQ (although lower 440bps YoY), analyst at Prabhudas Lilladher said in earnings preview.

Brokerage firm Edelweiss Securities expects MSIL’s revenue to plunge 16 per cent YoY due to weak volume and ASP (average selling price) growth. Operating margins are expected to improve only marginally sequentially due to lower cost pressures and moderating incentives.

Analysts at Antique Stock Broking reiterate SELL on MSIL with a price target of Rs 5,098 on market share sustainability challenges and structural margin erosion.

The brokerage firm believes MSIL is likely to lose market share due to its exit from diesel segment with readiness of Hyunai/Tata/Honda to fill the gap; lack of any exciting new models in sight; and intensifying competition in its key segments from Mahindra & Mahindra’s XUV300 and Hyundai Venue, upcoming launches such as Tata Altroz and new i20/i10 Grand and comeback of new Honda Amaze against Dzire.

Volume growth remains weak across segments while companies had to deal with higher inventory levels with dealers, which announced production cuts, analysts at Elara Capital said in quarterly preview.

“Q2FY20 is likely to be subdued for the industry before recovering in Q3FY20, led by BSVI pre-buying and the festival season, with various measures taken by the government to improve liquidity in the economy, a further cut in interest rates and normal Monsoon can lift overall sentiments,” they said.

Maruti's board of directors is scheduled to meet on July 26 to consider the unaudited financial results for Q1FY20.