Demand for cheaper cars and healthy volume growth will boost Maruti Suzuki’s profit in the second quarter

• Maruti sold 16.2% more cars in the second quarter compared to the same period last year.
• According to various analysts reports, the company is likely to see a 15% jump in its revenue, leading to profit growth of 14.6% in the quarter under review.
• The stock has gained over 25% since the beginning of the second quarter.

The automobile sector witnessed the most significant turnaround last quarter after subdued sales in the early six months due to the COVID-19 pandemic — and Maruti has been one of the beneficiaries of this recovery. The company clocked in a remarkable volume rebound from the lows of the first quarter. Analysts believe that this sets the stage for Maruti’s second quarterly earnings due tomorrow.

While the COVID-19 pandemic has significantly hurt the auto sector, the Passenger Vehicle (PV) segment was the first to recover on the back of strong demand due to increased choice for personal mobility. Maruti, which is the country’s largest car maker stands testament to that. The company sold 16.2% more cars in the second quarter compared to the same period last year.

According to various analysts reports, the company is slated to see a 15% jump in its revenue, leading to profit growth of 14.6% in the quarter under review.

Q2FY21 Earnings Estimates

What worked for Maruti in the last quarter?

Anti-dieselization helped Maruti

According to the HDFC report, Maruti has the upper hand in the auto industry due to its entry-level portfolio and stronghold in rural areas (40% of sales). Maruti’s higher exposure to gasoline vehicles also benefited the company as the rising fuel prices led to anti-dieselization. With parity between petrol and diesel prices, the economic logic for buying diesel cars is now forgone. People will now be more attracted to CNG, and LPG operated cars in a bid to cut down on the fuel costs.

Increased preference for personal mobility and cheaper cars

The coronavirus fears led to increased preference for personal mobility around the country, leading to an uptick in demand for private vehicles. And, with lower income and job losses, people will look out for cheap cars. The Axis report highlighted that inquiries for cheap cars jumped to 65% from the previous high of 56%. Maruti also enjoys monopoly by holding 80% and 60% market share in the mini and compact PV segment in India.

The future holds more for Maruti and its investors

While the last quarter turned things around for Maruti, the upcoming festive season is likely to bring more cheer, according to analysts. A sharp uptick in sales is expected, and investors are factoring that in as well. Maruti stock has gained over 25% since the beginning of the second quarter.

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