Maruti Suzuki discounts hit all-time high; yet sales slump in Q2

Maruti Suzuki, India’s largest car maker, offered never-seen-before levels of discounts per car during the September quarter after sales had slumped more than 30 percent.

The Delhi-based maker of Swift, Baleno and Brezza models said it had given out an average of Rs 25,761 on every unit it sold during the July-September quarter, aggregating to Rs 805 crore direct loss. However, the total discounts outgo during Q3 of 2018 was the highest ever for the company.

During the October-December quarter of FY19, Maruti Suzuki handed out life-time high discounts per vehicle at Rs 24,300. The total discount during that quarter stood at Rs 985 crore.

Average discounts in Q2 of 2019 were also 52 percent higher than those of Q1 when they were Rs 16,941 per vehicle and 37 percent higher than Rs 18,758 offered during the September quarter in 2018.

Maruti Suzuki clocked 312,519 units in sales in the domestic market during the September quarter, marking a fall of 31.4 percent compared to the same quarter in 2018. The fall has come despite steep discounts offered throughout the quarter.

Discounts on the Brezza compact sports utility vehicle (SUV), which was India’s best-selling SUV, surged to more than Rs 100,000 especially after Hyundai had launched the Venue SUV pitted directly against it.

Swift, Dzire and Baleno, too, saw consumer schemes on them increase to more than Rs 70,000. Diesel variants, which have seen consumer disconnect for last several months, carried maximum discounts.

The company clarified that discounts would likely go down by an unspecified amount after Diwali with the progressive replacement of Bharat Stage IV (BS-IV) stocks with BS-VI stocks.

However, Maruti Suzuki is finding itself in a ‘catch 22’ situation. If the company lowers discount levels, it could impact retail sales. Fixed costs would then eat into margins. The company is now forced to choose between discounts and impacts of lower output from its factories.

Ajay Seth, CFO, Maruti Suzuki, said, “If demand continues to be weak then obviously discounts will continue. It is a chicken and egg situation. All of us have surplus capacity and if we don’t utilize it then we are sitting on a huge fixed cost overhang. So we have to choose between the devil and the deep sea.”

Seth was talking to analysts after announcing the Q2 financial results.

Seth also informed that the S-Presso mini SUV had been well received by the market. The indigenously-developed vehicle has garnered 16,500 bookings since its launch on September 30.

“We have delivered 6,000 units of the S-Presso so far and per day bookings has been 700-750 units,” said Shashank Srivastava, executive director, Maruti Suzuki.

The company further informed that, despite the severe slowdown in the market, it would not alter capital expenditure of Rs 4,400 core planned for the year.

“We will go ahead with the capex set aside for the year since the start of the year,” added Seth.

[“source=moneycontrol”]