Maruti may face more earnings downgrades | Economic Times

ET Intelligence Group: The stock of Maruti Suzuki India has lost 6 per cent over the past six months, widely underperforming the 15 per cent return of the benchmark S&P BSE Sensex. The lacklustre show reflects the margin pressure on the country’s largest passenger vehicles (PV) maker following input cost inflation. Analysts have pruned its earnings by 6.7 per cent since the beginning of the current fiscal year, according to Bloomberg data. The trend may continue given the weak sales volume in August amid the shortage of semiconductor chips. The shortage was aggravated by a lockdown in Malaysia in August. This crippled the production plan of Indian carmakers significantly. Maruti Suzuki in a statement to stock exchanges on August 31 said that its production fell to 40 per cent of the normal level. It manufactured an average of 1.7 lakh units a month in FY22 so far, excluding May, according to the exchange filing. At the current rate, it would produce around 60,000 units in September.In the first five months of FY22, the company sold 6.5 lakh vehicles or 1.3 lakh units a month. At present, analysts expect the sales volume to increase by 26-30 per cent to 18.5-19 lakh units for FY22. Bloomberg consensus estimates suggest revenue growth of 34 per cent to Rs 89,633 crore for the fiscal year. However, given the chip shortage, the volume growth may be restricted to 13-15 per cent while revenue may grow by 20-22 per cent. The lower chip availability may result in a forgone volume of around two lakh units shaving off nearly Rs 10,000 crore from the revenue.The company’s parent Suzuki Motor Corporation has guided for volume growth of 11 per cent of Indian operation for the current fiscal year in its recent earnings announcement. Lower production in September month would impact the festival sales volume of the company. Typically, companies increase the production rate in September month to fill channel inventory before the festival.The lower volume growth would also affect the profitability. Maruti reported an operating margin before depreciation and amortisation (EBITDA margin) of 4.6 per cent in the June quarter. The full-year margin is pegged at 8.8 per cent going by the consensus estimate. The management expects commodity cost pressure to continue for the second quarter too.At Thursday’s closing price of Rs 6,777 on the BSE, the stock was traded at 29 times of one-year forward earnings, a premium of 9 per cent over the long-term average valuation. The premium may fall with a risk of earnings downgrade and shrinking market share in the fast-growing sports utility vehicles segment.