Maruti Suzuki India on Tuesday reported revenues of ₹37,202.8 crore for the second quarter of the fiscal, a growth of just 0.4 per cent from ₹37,062 crore a year ago — the slowest in nearly three years on account of low demand for small cars.

Analysts had expected revenues to rise 1.4 per cent to ₹37,559 crore as the stock tanked 4.11 per cent to settle at ₹11,010 on the BSE.

Maruti chairman R.C. Bhargava expressed concern about the falling demand for small cars, signalling affordability issues as the key factor in the sales decline.

The company reported an 18 per cent year-on-year dip in standalone net profit at ₹3,069.2 crore against ₹3,716.5crore, hit by the withdrawal of indexation benefit and a change in the tax rate on long-term capital gains on debt mutual funds.

However, excluding the tax liability, profit increased 6.3 per cent year-on-year.

Lukewarm demand for new cars has forced manufacturers to moderate dispatches to dealers and dish out higher discounts to attract buyers as showroom owners grapple with rising levels of unsold cars.

The higher discounts also led to a drop in Maruti’s margins on operating earnings before interest and taxes to 10.3 per cent for the second quarter from 11.1 per cent a year ago, the company said.

Small cars

Maruti’s overall sales volumes in the quarter fell 2 per cent, hurt by a continued drop in the sales of small cars — which is its biggest segment and comprises 38 per cent of the total — while sales of its high-margin utility vehicles were little changed.

Small car sales dropped 13 per cent in the quarter.

“During 2018-19, as much as 80 per cent of the car sales was in the under-₹10 lakh category, and that market is not growing at the moment,” Bhargava said.

He pointed out that without growth in the affordable market, there will be fewer entry-level buyers progressing to higher-end models. “Growth concentrated only in the pricier car segments doesn’t bring satisfaction.” he stated.

“Demand itself has softened, but Maruti’s Suzuki’s performance remains solid with record turnover and robust profitability, ” he said.

The automaker’s outlook for the remaining fiscal year hinges largely on festive sales and economic recovery in key segments, particularly as it seeks to balance affordability pressures with its growth strategy in India’s competitive auto market.

The company said its board has, in principle, approved the amalgamation of Suzuki Motor Gujarat Pvt Ltd, a wholly-owned subsidiary, with the automaker.

With inputs from Reuters