Maruti net lags forecast as competition increases

Maruti net lags forecast as competition increases

Mumbai: The country’s largest car maker Maruti Suzuki India Ltd posted lower than expected earnings as rising raw material prices and increased competition took their toll on profitability.

Maruti, which sold more than a million cars for the first time last fiscal, posted a net profit of Rs656.6 crore in the quarter ended 31 March, a 170% jump over the same period last year.

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Profit was less than the Rs712 crore a Mint poll of five analysts had forecast. Revenue stood at Rs8,424.5 crore, up 23%.

“There’s no surprise element on the margin drop, which was expected, but the net profit is lower than what one would expect," said Mahantesh Sabarad, senior analyst at Fortune Equity Brokers (India) Ltd.

Car sales in India rose 25% last year with pent up demand contributing to a lot of the growth. Maruti expects the market to grow at a slower 11-15% this fiscal with large towns that make up 40% of sales getting back into growth mode. Rural sales, which rose to 16.5% of total sales in the last fiscal year, helped Maruti pick up some slack.

Raw material prices that had stayed low in the first half of the fiscal started rising again in the fourth quarter. The average increase in the prices of steel, aluminium and copper—three key inputs—was 10-15% in the last quarter, Ajay Seth, chief financial officer, said on a conference call. As a result, raw material costs rose 22% to Rs6,127 crore.

The company has been losing market share due to capacity constraints and plans to invest Rs1,700 crore to expand its Manesar facility by 250,000 units a year by 2012. Total spending for the current fiscal will rise to Rs2,800 crore from Rs1,300 crore in the last one as the company funds research and development and new model launches.

Maruti’s shares fell 2% to Rs1,333.7 in trading on the Bombay Stock Exchange. The results were announced before markets closed.