Maruti Suzuki India Ltd, the country’s largest carmaker, is banking on a buoyant Diwali season to recover from a challenging second quarter which saw the company’s net profit decline 18% to Rs 3,069 crore.
The company’s bottom line was impacted mainly by tax provisions linked to the Finance Act of 2024. But the hit to profitability came as a double whammy with the first one being a slow growth in the broader automotive sector.
To be sure, India’s passenger vehicle (PV) sales recorded a mere 0.5% rise in the first half of FY25, below initial industry forecasts of 3-4%. However, Maruti’s strong Diwali sales projections have sparked optimism.
But will the festive demand could steer a turnaround for the company and the industry at large?
Festive Demand and Inventory Management
Maruti Suzuki’s upbeat sales outlook for the festive period between the end of the shraadh season and Diwali indicated a projected 14% increase in retail sales year-over-year, expected to reach nearly 297,000 units.
The company expected to set an October record with projected retail sales of over 200,000 vehicles, which would surpass the previous peak of 191,000 units in 2020. On the other hand, stable bookings have also exceeded 400,000 mark across Maruti’s models.
The Strategic Impact of Tax Reforms
Maruti’s profit shortfall in Q2 was largely due to an Rs 837.6 crore provision on the back of tax reforms under the Finance Act of 2024. The policy change, which removed the indexation benefit and adjusted long-term capital gains tax rates on debt mutual funds, directly impacted Maruti’s tax liabilities. The one-off provision created a significant drag on the company’s earnings, although Maruti’s operational fundamentals remain solid.
Industry-Wide Implications
Maruti’s festive projections are reflective of broader market trends. With several manufacturers recording an uptick in bookings, the festive season could prove to be a pivotal period for PV sales.
The entire auto industry is watching how Maruti’s festive performance may set the tone for Q3 and Q4, especially as the market looks to recover from lukewarm demand earlier in the year.
The company’s focus on scaling back discounts and improving inventory efficiency is an encouraging sign, as other manufacturers may adopt similar strategies to protect margins and adjust supply with expected demand.