Maruti Net Rises 18% to 549 cr

Other income, rise in sales help auto co post better-than-expected results in June quarter

Maruti Suzuki, which sells approximately half the cars on Indian roads, posted a better-than-expected 18% increase in profit in the June quarter, boosted by other income and rise in sales. Maruti, where 54.2% is held by Japan’s Suzuki Motor, suffered production losses worth . 483 crore during the quarter as a 13-day old strike by employees crimped production at its Manesar facility.
Automobile sales in India have slowed down as rising interest rates and higher fuel prices have curtailed demand. Driven by rising disposable incomes, auto sales posted a record high of 30% in the financial year 2011. Analysts have forecast a modest 10-12% growth during the current financial year.
The RBI has increased interest rates 11 times in the past 15 months. The central bank raised raised rates by 50 basis point on Tuesday, which could lead to a to a further decline in demand for cars, a majority of which are financed through auto loans. Car makers have been offering discounts for petrol cars and resorting to competitive pricing for diesel cars to prop up sales in a slowing economy.
“Maruti will have to sustain its volume growth by offering discounts for petrol cars in the coming quarters,” said Deepak Jain, analyst at Mumbai-based brokerage firm Sharekhan. Maruti is confident of beating the slowdown through measures like discount offers and launch of new products. “There is definitely a slowdown. But demand will pick up during the festive season,” said Ajay Seth, CFO, Maruti. The New Delhi-based company posted a net profit of . 549.2 crore during the quarter. The company’s net sales rose by 3.3% to . 8,319 crore during the first quarter. Maruti reported other income of . 180 crore for the June quarter. Return on investments accounted for major portion of the other income. Maruti scrip was up 0.8% in a Mumbai market that down 1.6%.
“Rising yen is a worrying sign for Maruti. The company has hedged yen imports for the first quarter and partly for the second quarter. With Maruti not hedging for yen imports in the third quarter, it will find the going tough since the Japanese currency is appreciating against the dollar. For Maruti, total yen outgo is 21% of total sales and this is quite significant,” Mr Jain said.
Though higher commodity prices and foreign exchange volatility put pressure on margins during the quarter, this situation is likely to change in the ensuing quarters. “Feedstock prices will ease in the third quarter. This will partly offset the negative impact caused by the rising yen,” Mr Jain added. Maruti spent . 6,502 crore on raw materials in the first quarter, up from . 6,080 crore in the year-ago period.