Maruti has indicated to its dealers that it plans to hike prices across all its models by up to Rs 15,000 from January. That's one way of pre-empting purchases by customers.
In October, the company had raised prices across all models, except the Swift, by around 0.2-1 per cent.
It is unlikely that the hike would be very steep, because except for a couple of models, in particular the Swift, the car maker is not really seeing a strong pull for its vehicles.
While there is obviously a need to pass on increased costs owing to freight and other inputs, it would be difficult for the company to raise prices too much. Ideally, it should take a marginal increase and wait for demand to pick up.
In fact, even if it does raise prices, it might be forced to give discounts, which will keep operating margins under pressure. The impact on bottom line would essentially be the same.
Maruti's combined sales for October and November have been up a fairly good 11 per cent over October and November 2004, and that's mainly because of Diwali sales. The category that's doing the best is the A2 segment, in which the Swift has turned in strong numbers.
While it's not really meaningful to compare November figures (most of the Diwali purchases happened in October this year against November last year), nonetheless the numbers are a little disappointing.
Maruti 800 sales declined 17 per cent, whereas the A3 segment (Esteem and Baleno) fell 27 per cent in November 2005 y-o-y. A 22 per cent rise in A2 segment, which comprises Alto, Zen, Wagon R and Swift, was responsible for the 6 per cent growth in domestic car sales.
Once the company's diesel engine plant is commissioned, Maruti should be able to offer a diesel range of vehicles which should propel sales growth.
At the current price of Rs 620, the stock trades at nearly 15 times 2006-07 earnings. Analyst are positive on the stock primarily because the demand for cars appears to be steady and the Swift is doing well.
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