Maruti Suzuki’s Q3 profit rises 48% on premium car sales

New Delhi: Maruti Suzuki India Ltd has seen a 47.5% jump in net profit in the December quarter from a year ago, with India’s largest carmaker managing to grow sales, albeit marginally, even as many of its peers are coping with declines.

The company said net profit rose to Rs1,744.5 crore in the three months ended December, from Rs1,183 crore a year ago. It narrowly missed the Rs1,770 crore estimate based on the average of 28 analysts polled by Bloomberg. Net sales grew to Rs19,173 crore from Rs16,957 crore a year ago.

In a statement, Maruti attributed the performance to the increase in the market share of its larger and premium models, lower sales and marketing expenses, cost reduction initiatives and higher non-operational income. “This was partially offset by the increase in commodity prices and adverse foreign exchange movement during the quarter,” it added.

Maruti sold a total of 387,251 vehicles in the third quarter, a growth of 3.5% over the same period a year ago. Of this, exports stood at 30,748 units.

Maruti’s sales numbers come in the backdrop of the 8 November withdrawal of high-value currency notes that triggered a cash crunch and prompted many prospective customers to defer purchases. Automobile sales in December declined 18.66%, the most since December 2000 when they fell 21.81%, according to data from the Society of Indian Automobile Manufacturers.

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At its third quarter earnings press conference, Maruti cautioned that its margins would come under pressure when it starts buying cars from parent Suzuki Motor Corp. under a contract manufacturing tie-up, which comes into effect this quarter. During any expansion, fixed costs remain high until the company attains full capacity, but they start moderating as capacity utilization improves. Suzuki’s plant in Gujarat is expected to be operational by February, solving its Indian subsidiary’s capacity woes. Maruti will buy vehicles from Suzuki Motor Gujarat at cost price.

The Japanese yen has strengthened against the dollar in the past three months. A strong yen makes imports from Japan costlier and that may also be a key factor during March quarter.

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In a statement to shareholders, Marutis managing director Kenichi Ayukawa said Haryana State Industrial and Infrastructure Development Corp. Ltd had raised demands of Rs1,031.7 crore towards “enhanced compensation to landowners for the company’s freehold land at Manesar, Haryana”.

Ayukawa said the firm has made a payment of Rs374.20 crore under protest and capitalized it as part of the cost of land. The matter is pending before the Supreme Court.

The results seem “satisfactory”, said Mahantesh Sabarad, deputy head of research (equity) at SBICAP Securities Ltd. “What has to be seen now is the new Gujarat plant and its integration into Maruti,” he added.

Maruti shares on Thursday rose 1% to close at Rs5,796.80 apiece on BSE, while the benchmark Sensex gained 1.21% to 27,708.14 points.