Maruti Suzuki Q2FY25 Performance

Maruti Suzuki Q2FY25 Performance Preview: Expected Revenue and Profit Impact Amid Demand Slowdown

1. Background on Q2FY25 Performance:

• Date of Earnings Announcement: Maruti Suzuki India Ltd is set to announce its earnings for the quarter ended September 2024 (Q2FY25) on Tuesday, October 29.
• Anticipated Financial Impact: Revenue and net profit are expected to be affected due to reduced sales and recent changes in tax regulations.

2. Key Financial Forecasts:

• Net Profit: Forecasted to be between ₹3,650 and ₹4,029 crore, which represents a 6-10% year-on-year growth.
• Revenue: Expected in the range of ₹36,865 to ₹37,424 crore, indicating a 3-5% year-on-year increase.

3. Sales Impact:

• Passenger Vehicle Sales Decline: Maruti Suzuki reported sales declines in two of the three months of Q2FY25:
  • July saw a 9.6% year-on-year decrease in sales.
  • August sales dropped by 3.9%.
  • In September, however, there was a slight recovery with a 1.87% increase.
• Result on Q2 Earnings: Lower overall quarterly sales are likely to affect Maruti Suzuki’s revenue.

4. Tax Changes:

• Deferred Tax Impact: The Finance (No.2) Act 2024 removed the indexation benefit for calculating long-term capital gains on debt mutual funds, requiring Maruti to increase its deferred tax provision by approximately ₹850 crore.
• Effect on Profit: This one-time adjustment will affect Maruti Suzuki’s profit after tax in Q2FY25.

5. Previous Quarter (Q1FY25) Performance Recap:

• Net Profit: Recorded a 46.9% year-on-year growth, totaling ₹3,650 crore.
• Revenue: Grew by 10% to ₹35,531 crore.
• EBITDA Margin: Increased to 12.5% in Q1FY25 from 9.2% in Q1FY24, with positive effects from cost reduction and currency gains.

6. Key Investor Metrics:

• Outlook for Demand: Investors are closely watching the company’s outlook on demand for different vehicle categories.
• Focus on New Launches: Especially in the electric vehicle (EV) segment, as the automotive industry shifts towards sustainable models.

7. Stock Performance:

• Recent Performance: Maruti Suzuki’s stock closed at ₹11,529 per share, a slight 0.23% increase before the earnings announcement. However, the stock has fallen by 5% over the last five trading days and 13% over the past month.
• Year-to-Date Growth: Despite recent declines, the stock is still up by 12% for the year.

Advantages

1. Revenue Growth: Despite the sales challenges, Maruti Suzuki is expected to post a 3-5% revenue increase, indicating resilience.
2. Profit Growth: A 6-10% rise in net profit suggests the company’s ability to maintain profitability in challenging conditions.
3. Product Diversification: Continued focus on new launches, particularly in the EV segment, positions Maruti well for future growth.
4. Cost Management: Effective cost controls and favorable currency movements contributed positively to the Q1FY25 performance and might mitigate some of the Q2 impacts.

Disadvantages

1. Sales Slowdown: A decline in vehicle sales across two of three months in Q2 indicates a demand slowdown, which could impact revenue.
2. Tax Changes Impact: The Finance Act changes have introduced an additional tax liability, reducing profitability.
3. Stock Volatility: The Maruti Suzuki stock has experienced significant declines recently, reflecting investor uncertainty.
4. Market Competition: Maruti faces intense competition in the automotive market, which could affect future market share if not managed well.

Conclusion

Maruti Suzuki’s Q2FY25 preview highlights challenges such as a dip in vehicle demand and an increased tax provision due to regulatory changes. However, the company’s financial stability is supported by strong revenue and profit projections, alongside strategic cost management. Maruti’s focus on diversifying its product lineup, particularly in the EV sector, provides long-term growth potential, although short-term headwinds remain due to recent market and regulatory pressures.

FAQs

1. Q: Why is Maruti Suzuki’s net profit expected to be impacted in Q2FY25?
   A: Maruti Suzuki anticipates a one-time tax liability of ₹850 crore due to the removal of the indexation benefit on long-term capital gains from debt mutual funds, impacting its Q2 net profit.
2. Q: What is the forecast for Maruti Suzuki’s net profit in Q2FY25?
   A: The company’s net profit is expected to be between ₹3,650 and ₹4,029 crore, indicating a 6-10% increase year-over-year.
3. Q: What is the revenue growth expectation for Maruti Suzuki in Q2FY25?
   A: Maruti Suzuki’s revenue is expected to grow between 3% and 5%, reaching around ₹36,865 to ₹37,424 crore.
4. Q: What was the impact of recent tax changes on Maruti Suzuki?
   A: The Finance (No.2) Act 2024 removed the indexation benefit on calculating long-term capital gains for debt mutual funds, which led Maruti to increase its deferred tax provision by ₹850 crore.
5. Q: How has Maruti Suzuki’s stock performed recently?
   A: Maruti Suzuki’s stock was trading flat at ₹11,529, but it has dropped 5% in the last five trading sessions and 13% over the past month, although it has shown a 12% rise year-to-date.

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