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Suzuki Q2 operating profit up despite India strife

Suzuki Q2 operating profit up despite India strife
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First Published: Mon, Nov 07 2011. 05 12 PM IST

Updated: Mon, Nov 07 2011. 05 12 PM IST
Tokyo: Suzuki Motor Corp on Monday posted a 6.2% rise in quarterly operating profit as lower marketing costs offset a fall in sales, particularly in India where its subsidiary was struck by labour unrest.
Thanks to a big overshoot in the first half, Japan’s No.4 automaker kept its cautious annual forecasts unchanged even though it assumed tougher exchange rates for the rest of the year.
But chief executive Osamu Suzuki said the firm faced uncertainty from the recent floods in Thailand, which have stopped its motorcycle factory since mid-October and could threaten its car production in Japan starting in December.
“Until the end of November, production of both motorcycles and cars in Japan should be fine, but we just can’t get a read on the situation from December,” Suzuki told a news conference. He said the company would give weekly updates from next month.
Suzuki said any disruption would come from the shortage of parts, including from Japan’s Rohm Co , whose chips are used by Suzuki’s tier-one suppliers such as Aisin Seiki Co and Denso Corp .
Citing such uncertainty, Suzuki kept its operating profit forecast for the year to March 2012 at ¥110 billion ($1.4 billion) and net profit at ¥50 billion. It now sees the dollar averaging ¥75 in the second half from October instead of ¥80, and a euro rate of ¥105 instead of ¥110.
Consensus forecasts from 20 analysts have put operating profit at ¥114.6 billion.
July-September operating profit at Suzuki, held 19.9% by Volkswagen AG, was ¥39.2 billion thanks mainly to the fall in sales costs. That was far better than an average estimate of ¥25.6 billion in a survey of seven analysts by Thomson Reuters I/B/E/S.
Operating profit rose despite a 6.6% drop in second-quarter revenue to ¥618.8 billion. Net profit declined 13% to ¥13.3 billion as Suzuki booked a special loss of 17.5 billion for provisions to prepare for natural disasters.
‘Good Lesson’ From India Disputes
Suzuki’s motorcycle factory in Thailand has been closed since mid-October as deadly floods there disrupted the flow of parts supply. The company has been spared any impact on its car production in Thailand so far.
A major blow has come from sliding sales in India, where workers at one of subsidiary Maruti Suzuki India Ltd’s key factories went on strike. Suzuki owns 54.2% of Maruti.
CEO Suzuki said the latest dispute, which was resolved two weeks ago, and a fall in Indian car demand due to monetary tightening and other macroeconomic factors had resulted in a sales fall of 120,000 vehicles combined. For the full year, he said he expected Indian sales to remain flat at 1.2 million vehicles at best, or drop to 1 million if the weakness continues.
Suzuki added that he wanted Maruti to focus more on trying to achieve better pricing and to concentrate on medium-sized cars because low-end vehicles are swayed more by economic downturns.
Maruti last month reported a more than halving of its net profit in the same quarter, hit by strikes and a fall in overall Indian car sales in July, August and September as interest rates were raised and conditions for auto loans tightened.
Suzuki itself has been sparring with Volkswagen for months. After seeking a breakup because it was unhappy with what it said was the German automaker’s failure to treat it as an equal partner, it more recently served it with a notice of breach of contract, accusing its top shareholder of withholding hybrid technology.
“Our basic stance is that we want a peaceful resolution,” Suzuki said. “But we don’t want to let this drag on and on.”
He declined to say whether Suzuki will set a time limit on the discussions, adding: “We have no idea what is going on because they haven’t communicated directly with us.”
Volkswagen, for its part, has said it had provided “intensive technical support”, and that it was looking into legal options.
Shares in Suzuki have lost 18% in the year to date, in line with Tokyo’s transport sector subindex .
Before the results were announced, Suzuki ended up 0.4% at 1,640 yen, mirroring the benchmark Nikkei average.
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First Published: Mon, Nov 07 2011. 05 12 PM IST
More Topics: Company results | Suzuki Motor | Q2 | Profit | Auto |