Maruti Suzuki shares underperformed the broader market on Monday after chairman RC Bhargava forecast a weak growth for India's biggest car manufacturer. Maruti is likely to report a 6-7 per cent growth in 2013-14, Mr Bhargava told NDTV Profit. Shares in Maruti Suzuki traded 1.3 per cent lower at Rs 1,484 at 10.30 a.m. on the BSE while the broader Sensex was up 0.1 per cent at 19,264.
Here are five reasons for the continued weakness in car sales
- High ownership cost impacting sales: Mr Bhargava said the cost of ownership of cars has gone up on account of global increase in fuel prices, high interest rates because of inflation and the depreciation of rupee. The only way to offset this is if the per capita income of the people goes up so the higher cost can be covered by higher income, but there is little indication there will be significant increase in growth in coming years. So, we don't see much change in next year's car demand as compared to this year which is 6-7 per cent, Mr Bhargava said. (Watch: RC Bhargava, chairman of Maruti Suzuki, on FY14 sales outlook)
- Rate cut unlikely to boost sales: A small change in interest rates will not make much difference on demand because the EMI resulting from 0.5 per cent change in interest rates does not make much of a difference to the borrower, Mr Bhargava said.
- Economic growth unlikely to rebound: Mr Bhargava said if the GDP rate goes up substantially, there will be a difference in car sales, but that is unlikely to happen. Sales are unlikely to go over 6-7 per cent in fiscal 2013-14.
- Petrol car sales declining: Petrol car sales have been falling for a second straight year. In 2013-14, they are likely to flatten out and so all growth has to come from the diesel side. If diesel prices also go up that would be another setback for the industry.
- Diesel car sales softening: Diesel car sales have also come under pressure, Mr Bhargava said. The market has become soft for some diesel vehicles. We are looking at some launches in FY14 and we are looking at exchange rate stabilizing at current levels. Six months ago, most diesel cars were on the waiting list and there was no need for discounts as they were all selling well, but after Diwali, the demand for several diesel models are not as strong as earlier. Barring Swift, DZire, Ertiga and Duster, which have a waiting list, other cars are all available off the shelf and some of them have discounts too.
The only positive so far has been the weakening yen, Mr Bhargava said. Maruti is also trying to increase the local content and substantial impact from localizations may kick in from 2014-15, he said.