A toxic cocktail of macroeconomic factors and a possible over-dependence on sales to cab aggregators has hit the bottom line of India’s biggest carmaker.
For the quarter ended September 30, Maruti Suzuki reported a 10% year-on-year decline in its net profit to Rs 2,240.4 crore ($305.76 million), according to a filing to the Bombay Stock Exchange. Revenues increased 3% year-on-year to Rs 22,433 crore.
During the quarter, Maruti faced speed-bumps from higher fuel prices, a falling rupee, and rising interest rates.
The adverse economic climate apart, overly relying on sales to cab aggregators – a trend over the past two years – may also have hit profits.
“They are now selling a chunk of vehicles to taxi operators like Ola and Uber. These cab aggregators always go for the lowest range models and negotiate hard to enter into bulk deals. The bulk deals always bring you lower profitability compared to retail sales,” said Deepesh Rathore, director at consulting firm Emerging Markets Automotive Advisors.
While bulk deals suppress profits, they help car makers increase sales numbers.
So, in 2016, cab operators accounted for about a third of the total sales for auto companies in India, according to a poll. By the following year, sales to aggregators were estimated to have grown by at least 25%, whereas overall vehicle sales grew in single digits.
Around 8% of Maruti Suzuki’s cars alone were sold to taxi aggregators, a 2017 study shows. This seems important to Maruti as, owing to a host of factors, it has not been able to increase retail sales.
Maruti did not respond to Quartz’s request for a comment.
Festival blues
Maruti Suzuki sold a total of 484,848 vehicles in the July-September quarter, down 1.5% from last year.
Sales were weak as Indians held back purchases owing to the fuel price hike – petrol prices have risen nearly 16% since January this year.
“The recent announcement regarding third-party premiums have also increased the cost of vehicles and impacted their affordability,” Maruti Suzuki chairman RC Bhargava said in a post-earnings press conference.
But these troubles are not unique to Maruti.
“The situation we are in now is a recipe for significant slowdown. If fuel prices are going up and simultaneously EMIs are going up, that immediately slows down demand,” an auto sector analyst with a major audit firm told Quartz on condition of anonymity.
Bhargava said that Maruti’s struggles are continuing as it has not seen any uptick in sales despite its festive season discounts.
Sales of auto makers generally increase in October and November, around the time of major Indian festivals like Diwali. But this year, “the festival season does not seem to be showing any kind of great buoyancy over last year”, the analyst added.
This article first appeared on Quartz.
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