By laksh5382 
Sport utility vehicles (SUVs) and compressed natural gas (CNG) variants of existing models are currently driving auto demand in India. Maruti Suzuki India Limited’s September quarter (Q2FY25) results reflect this. The automaker reported a 20% decline in passenger car sales in the quarter, but SUV sales rose 9%.
Notably, rural customers generated the majority of demand for SUVs, indicating that the ongoing trend of ‘premiumisation’ is not limited to urban areas. SUVs now account for about 54% of the total mix in rural areas, where Maruti Suzuki Co. plans to expand its premium Nexa outlets.
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Unlike its rivals, Maruti has no plans to launch new SUV models in FY2015. Thus, investors can expect stiff competition which will take a toll on its SUV market share at 26%. The carmaker’s overall market share fell 50 basis points (bps) to 40.3% in Q2 as it struggled to attract customers for its entry-level hatchback and sedan.
Higher discounts and limited-edition launches during the quarter didn’t help. Maruti’s revenue remained stable year-on-year 37,200 crores. The average discount per vehicle was vs 29,300 in the second quarter 21,700 in Q1. Higher marketing expenses and solid raw material costs hurt second-quarter profitability, with EBITDA margin declining 100 bps year-on-year to 11.9%, 80 bps below analysts’ estimates.
Diwali to the rescue?
The management estimates that the festive season from Shraddha to Diwali will see growth of 14% year-on-year. By the end of the festive season, network inventory is expected to be down to about 30 days. This means discount pressure has eased in Q3.
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“The sharp rise in discounts is masking the strong mix advantage Maruti Suzuki India enjoys due to higher CNG mix,” a report by BNP Paribas Securities India said. “We are seeing the launch of more hybrid variants and EV models.” as a key medium to long-term catalyst,” it added. Maruti is optimistic that the growing CNG segment, which now accounts for about 33% of its total sales, will ease its demand problem and drive growth.
Maruti shares are down nearly 10% so far in FY25 amid lower demand. “At 22x FY26 (estimated) earnings per share, Maruti is trading at a discount to its history and an 18% discount to the auto OEM (original equipment manufacturer) basket in India,” IIFL Securities said. The broking firm believes the first concrete signs of improvement in the passenger vehicle industry will lead to a re-rating of the stock.
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