New Delhi: Maruti Suzuki India Ltd’s net profit surged 80% to a record in the fourth quarter of 2012-13, exceeding expectations and going against the grain in a market that shrank 6.69% in the year to March, as the country’s largest car maker cut discounts, raised prices, trimmed costs, and was helped by the yen depreciating against the rupee.
Net profit in the January-March quarter rose to Rs.1,147 crore over a year ago while net sales grew 9.4% to Rs.12,566.6 crore. A Mint poll of analysts had estimated profit at Rs.670.35 crore. The company’s previous profit record was Rs.688 crore in the December quarter of fiscal 2009.
The stock soared on the earnings announcement, ending 5.26% up at Rs.1,673.45, while the benchmark Sensex lost 0.62% to 19,286.72 points.
Net profit for the full year rose 41% to Rs.2,300 crore, while net sales went up 21.37% to Rs.42,123 crore.
An analyst expects the company to post healthy numbers in the June quarter as well.
“Although the demand scenario continues to be tough, there will be a respite on the raw material front as they are hedged properly,” said Surjit Arora, an auto analyst at Prabhudas Lilladher Pvt. Ltd, a Mumbai-based brokerage firm. “I expect them to post similar performance in the near term, say in Q1 (first quarter, FY14).”
This quarter’s performance will also receive a boost from last year’s lower base.
The numbers reflect a change in the company’s fortunes from the troubles it faced last year, when its Manesar plant was shut for a month after a senior manager was killed amid violence that stemmed from labour strife. The shutdown resulted in a revenue loss of at least Rs.3,000 crore.
Maruti Suzuki chief financial officer Ajay Seth said operating margins expanded to 10.6% in the quarter from 7.5% in the year ago because of a combination of factors such as cost reduction initiatives, a price increase in January, a decline in raw material costs and the exchange rate movement. The lowering of costs contributed 130 basis points and yen weakening 120 basis points, he said. A basis point is one-hundredth of a percentage point.
The company also reduced its dependence on imports to 19% this year from 26% last year. While 11% of the imported content was indirect (through vendors), 8% was direct, he said. The firm wants to bring down the overall imported content to 8-10% over the next three years.
“We started seeing a correction in yen in the December quarter and are realizing its impact this quarter. Moreover, the cost reduction and localization efforts, which we started some years ago, resulted in the increase in profits,” Seth said.
Mint reported in September that Maruti Suzuki plans to reduce its import bill by 75% in the next three years, seeking to protect itself against unfavourable exchange rate fluctuations that could dent profitability. In line with this plan, the firm wants to lower its net imports to $400 million (around Rs.2,180 crore today) in the year to March 2015 from $1.7 billion in March 2012.
“Uncertainty about the yen will continue in the year 2013-14 also. We will continue our programme of localization for cost reduction and de-risking from foreign exchange fluctuation. Commodity prices remained largely stable,” said Shinzo Nakanishi, a Maruti director.
The yen has depreciated 10.36% against the rupee in the last two quarters.
The average discount on a car sold in the March quarter was at least Rs.4,000 lower than the Rs.14,000 offered in the December quarter, the company said.
Maruti Suzuki said the earnings shouldn’t be read as a sign of recovery in the market. “Don’t get carried away by these numbers,” Seth said. “We are yet to see any signs of revival in the market.”
He also said the company will increase hedging against the yen from 30% of total imports to 70% very soon.
A slowing economy with high lending rates resulted in sales of passenger cars dropping to 1.9 million units in the last fiscal year, according to the Society of Indian Automobile Manufacturers, an industry lobby group.
Maruti Suzuki, which sold 39% of the total passenger vehicles (including utility vehicles) sold in the country last year, posted a 4.44% increase in sales to 1,051,046 units in the year. Exports declined 5.49% to 120,000 units.
Mayank Pareek, chief operating officer (marketing and sales), said sales were primarily driven by diesel models such as the Ritz, the Swift, the DZire and the Ertiga. These models accounted for 58% of the firm’s total sales last fiscal, he said.
Director Nakanishi said that while there are short-term concerns about the Indian economy and the growth of the automobile industry, the company remains positive about the long-term opportunity in the country.
He said the small car segment was hit the most by inflation and high interest rates.
“(But) I want to clarify that this is not a case of customers shifting to bigger cars,” he said. “It is just that the small car customer is not buying and the big car customer is buying.”
Sales fell 13% in the small car segment last fiscal. Maruti Suzuki recommended a dividend of Rs.8 per share for 2012-13.
Suzuki Powertrain India Ltd, a supplier of diesel engines and transmissions to Maruti, was absorbed into the company in the last fiscal year. Including Suzuki Powertrain’s numbers, Maruti’s net profit was Rs.1,239.6 crore.
The merger, aimed at improving synergies and cost management, took effect on 1 April 2012, but formalities were completed in March this year after court approvals. Maruti has also absorbed seven insurance-related arms, giving it additional cash of Rs.200 crore.
Shally Seth Mohile in Mumbai contributed to this story.