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Business News/ Companies / Company-results/  Maruti Suzuki Q1 profit up 21% as sentiment improves
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Maruti Suzuki Q1 profit up 21% as sentiment improves

Maruti Suzuki's net profit rose 21% to `762 crore in the quarter on a 10.8% increase in sales to `11,073.5 crore

Maruti officials said in a call with analysts that the company had noticed a marked improvement in demand over the last two months. Photo: Pradeep Gaur/MintPremium
Maruti officials said in a call with analysts that the company had noticed a marked improvement in demand over the last two months. Photo: Pradeep Gaur/Mint

New Delhi: Maruti Suzuki India Ltd reported a higher-than-expected profit for the June quarter on Thursday as optimism about an economic rebound spurred higher demand for vehicles made by India’s largest carmaker.

Net profit rose 21% to 762 crore in the three months ended 30 June from a year ago on a 10.8% increase in sales to 11,073.5 crore, the company said.

The company had been expected to report a profit of 729 crore in the fiscal fourth quarter, based on the median of 35 analysts’ estimates compiled by Bloomberg.

Maruti officials said in a call with analysts that the company had noticed a marked improvement in demand over the last two months.

The ascension to office of a Bharatiya Janata Party-led government in May has kindled hopes of higher economic growth, which languished at sub-5% levels for two years in a row.

Maruti, maker of the Wagon R hatchback and SX4 sedan, sold 299,000 vehicles during the quarter, an increase of 12.6% from the year-ago period. Sales in the domestic market rose 10.3% to 270,000 units.

Consumer sentiment has improved after the April-May general election produced a clear mandate, reinforced by the extension of an excise duty cut and promotional schemes across the auto industry, Bhaumik Bhatia, an analyst at IDBI Capital Market Services Ltd, wrote in a note to clients.

“Also, there has been pickup in entry-level segment and petrol segment, indicating first-time buyers are coming back to the market. These views are vindicated by the (Maruti) management as well," Bhatia wrote.

Maruti’s earnings were also aided by cost-saving exercises, volume growth and favourable foreign exchange movements. The rupee’s 2.05% gain against the dollar so far this year has reduced import costs.

Car sales slumped in the past two years as potential buyers were deterred by high borrowing costs and fuel prices in the face of the economic downturn.

The first signs of recovery came in the latest April-June quarter, when total passenger car sales rose 2.24%.

“Even the urban demand, which has been declining for years, was up 12-13% in June. So, there are more reasons to believe that a recovery is in sight," said Joseph George, an auto sector analyst at India Infoline Ltd, a Mumbai-based securities house.

To be sure, a part of the increase was due to what the automobile industry lobby group Society of Indian Automobile Manufacturers has called “speculative demand", as consumers advanced car purchases on concerns that the government may roll back the excise duty cut.

And there are concerns that a below-average monsoon and its impact on farm production may hurt the sales of two-wheelers and small cars, which depend on demand from rural areas.

Discounts offered by Maruti, amounting to as much as 21,000 per unit, helped sales; even so, cost reductions mitigated the impact of discounts, said Bhatia of IDBI Capital Market.

Earnings before interest, tax, depreciation and amortization (Ebitda) margin, a key indicator of profitability, was 11.5% for the quarter.

“Margins have increased by nearly 30 basis points," said Mahantesh Sabarad, deputy head of research at SBI Cap Securities Ltd.

Maruti said in a statement: “The company’s cost reduction and localization initiatives, growth in volumes and favourable foreign exchange (movement) helped improve the bottom line during the quarter."

Maruti plans to reduce its import bill by 75% by 2015, seeking to protect itself against unfavourable exchange rate fluctuations that could dent profitability, Mint reported in September 2012.

In line with this plan, the firm wants to lower its net imports to $400 million (around 2,400 crore today) in the year to March 2015 from $1.7 billion in March 2012.

Shares of Maruti Suzuki fell 1.07% to 2,524.50 on the BSE while the benchmark Sensex shed 0.74% to 25,894.97.

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Published: 31 Jul 2014, 02:09 PM IST
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