Maruti net up on lower tax and higher demand

Maruti net up on lower tax and higher demand

Mumbai: Maruti Suzuki India Ltd, the nation’s biggest car maker, posted a better-than-expected profit in the fourth quarter as economic growth boosted sales and the company’s tax payment fell.

Net profit rose 0.6% to 660 crore in the three months ended 31 March from 656 crore a year earlier, the firm said in a statement on Monday.

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That exceeded the 598 crore average of 25 analyst estimates compiled by Bloomberg. Sales gained 20% to 9,860 crore.

Maruti’s tax payment fell 44% in the quarter as government allows firms tax benefits for spending on research and development, according to chief financial officer Ajay Seth.

The company is increasing spending on research as it seeks new models and technology to fend off rising competition from Toyota Motor Corp. and Volkswagen AG.

“Maruti’s profit improved in the quarter largely on account of the tax benefit on research and development," said Umesh Karne, a Mumbai-based analyst with Brics Securities Ltd, who has a reduce rating on the stock. “We expect Maruti to continue their sales growth, but margins will definitely be under pressure."

The maker of Alto, India’s best selling car, paid a tax of 167 crore in the quarter against 298 crore a year ago, it said.

Annual profit at Maruti fell 8.4% to 2,280 crore.

Maruti rose 1.53% to end at 1,326.55 on the Bombay Stock Exchange on Monday. The stock has dropped 6.7% this year against a 4.5% decline in the benchmark Sensex index.

India’s car sales growth may slow to 18% in the year that started in April because of higher prices and rising borrowing costs, Pawan Goenka, president of Siam, said in New Delhi on 8 April.

Sales grew 30%, the biggest gain in at least nine years, to 1.98 million in the year ended March, according to the group.

“In the long term, India’s economic growth is fundamentally strong, in the short term, there’s uncertainty on factors like rising fuel prices and interest rates," Maruti’s chief executive officer Shinzo Nakanishi said on a conference call with analysts on Monday. “We will continue to improve our efficiency and localization to reduce costs."

The average rate for a car loan has risen by 2.5 percentage points after eight interest rate hikes in the past year, says Siam. India’s economy expanded 8.2% in the quarter ended 31 December, after an 8.9% gain in the previous three months.

Maruti aims to boost capacity by 21% in the year that started on 1 April as part of investment plans totalling as much as 4,000 crore, Seth said this month. It expects capacity to reach two million vehicles a year by March 2013.

Toyota, the world’s largest auto maker, said in March it will accelerate plans for a 40% capacity increase in India because of surging demand for Etios, Corolla and Fortuner vehicles. Ford Motor Co. intends to add eight models in the country by 2015, while PSA PeugeotCitroën SA is working on plans to open its first Indian factory.

Karthikeyan Sundaram and Subramaniam Sharma in New Delhi contributed to this story.