Suzuki just lost nearly $2 billion in 2 days because of what’s happening in India

• Production cuts at Maruti worsen the impact of slowing car sales in India.
  
• Suzuki shares fell over 4.3% in Japan on Monday, and another 3.3% a day later, due to the threat to its earnings after the slump in India.
  
• Maruti accounts for over 52% of Suzuki’s global sale volumes.
  

Thousands of miles away from India, the share price of Suzuki is taking the beating for Indians shying away from car showrooms. The stock lost over 4.3% on Monday, and 3.3% on Tuesday, together worth nearly $2 billion in market capitalisation due to the falling demand for cars in general in India, which is eating into the profits of its Indian partner Maruti.

India’s largest car maker Maruti Suzuki has cut production for the fifth consecutive month due to lack of demand. Overall output in India will be down 15% while that of small cars will down to half in July compared to a month earlier, Maruti said.

Maruti’s shares fell 4.8%, shedding ₹7,000 crore in market value on Monday.

“In view of the current sales environment, we lower our estimates for India domestic sales to +0.2% for FY2019 (from +5.4%) and +3.7% for FY2020 (+6.4%),” JPMorgan said in a report. This will be a debilitating blow for Suzuki for whom India makes for over half of all its global sale volumes.

All Indian car makers put together saw a decline in sales of 18.8% in June, the seventh straight monthly fall in car sales, and the worst in 18 years, as per the Society of Indian Automobile Manufacturers (SIAM). In September 2001, after the tech bubble burst plunging the global economy into a temporary crisis, the sales had dropped down by 21.91%.


The current slowdown in car sales is largely attributed to a broader economic slowdown, lack of jobs, and a decline in consumer sentiment over the last couple of years, starting from the demonetisation in November 2016 followed by the introduction of the Goods and Services Tax (GST) soon after.

In rural India, the decline in demand for cars is attributed to a protracted farm crisis, made worse by the ongoing water crisis and deficient monsoon in many parts. This has had a significant impact on Maruti, which has a deeper reach and penetration outside the big cities too.

People in India increasingly prefer cab aggregators like Ola and Uber, or even second hand cars to new ones.

Double whammy

However, the declining sales have not led to a fall in its price. The price of cars is on a rise due to the new emission norms set to kickstart in India from April 2020. The new mandatory BS-VI (Bharat Stage-VI) emission norms are set to make the diesel engine operated vehicles, especially cars, more expensive.

“The rollout of new emissions standards (BS6) and Suzuki's competitive edge (mainly in gasoline cars), we think conditions are currently at their worst amid a bleak short-term earnings outlook, and continue to believe that now is the time to consider medium-term investment,” JPMorgan said.

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