Mumbai: Maruti Suzuki, India’s top carmaker, reported a surprise 20% fall in net profit in the quarter to June, hit by high raw material costs, an increase in royalty payments, and a weakening of the euro which hurt export revenues.
Maruti said net profit slid to Rs465 crore ($98.9 million) for its fiscal first quarter ended 30 June, from Rs584 crore a year earlier. Additional royalty payments to Suzuki Motor Corp, which holds a 54.2% stake in the company, totalled Rs189 crore.
Added falls in “other” income, that made for a net negative impact of about Rs300 crore compared to a year earlier.
A Reuters poll had forecast net profit at Rs704 crore for Maruti, which sells roughly half the cars in India but is facing intensifying competition from the likes of South Korea’s Hyundai Motors, the second-largest car maker in India, as well as domestic rivals.
“This quarter seems to be a bottom for the company,” said Surjit Arora, auto analyst with Prabhudas Lilladher.
“Going forward, we expect margins to improve from here on because sales are still strong. The extra-ordinary other expenses due to royalty payments will most likely not be there in future quarters, though currency fluctuations will have to be watched,” Arora said.
The euro also depreciated about 6.5% against the rupee in the quarter, hitting exports which account for up to 15% of Maruti’s earnings.
Other recent entrants into the local compact car market are also snapping at Maruti’s heels. Toyota has said it would treble sales next year, while Ford’s Figo, General Motors’ Chevrolet Beat minicar and Volkswagen’s Polo hatchbacks have met with a good response.
Maruti shares, worth $8.3 billion, have fallen 13.2% this calendar year, lagging the sector index which has risen 13.4% and India’s main index, which has risen just under 4%.
Maruti reached its production limit of 1 million cars in March this year, but is stretching its existing manufacturing capacities to make more cars to meet demand.
It is expanding capacity to produce an additional 250,000 cars annually, but that will only be available in April 2012.
In the June quarter it sold 283,324 cars, up about a fourth, from a year earlier.
Foreign portfolio investments in Maruti have reached the maximum limit of 24%, another reason why the stock has been underperforming. Additional investments by foreign funds will require the company to raise the limit on such investments.
Car sales in India have been on a roll, with industry-wide sales up by one-third to 554,566 units in the first quarter of the fiscal year that started in April.
For the current fiscal year, car sales are seen rising 12-13%, according to industry body Society of Indian Automobile Manufacturers.