Maruti Suzuki to make electric cars, Q2 profit growth slows

Maruti Suzuki’s chairman R.C. Bhargava. The carmaker’s Q2 profit rose 3.4% to Rs2,484.3 crore, from Rs2,401.5 crore a year ago while net sales rose 21.8% to Rs21,428.1 crore. Photo: Mint

New Delhi: Maruti Suzuki India Ltd, which posted a marginal increase in September quarter net profit but still beat Street expectations, said on Friday that it will build electric cars, as the government pushes for environment-friendly alternatives to diesel and petrol vehicles.

“We will make electric cars. We intend to be leaders in the segment as well,” chairman R.C. Bhargava said at a press conference where the company announced its quarterly earnings.

Bhargava didn’t specify a timeline by when India’s biggest carmaker plans to start manufacturing electric cars, a segment in which Mahindra & Mahindra Ltd is the local leader.

Maruti will benefit from a potential partnership between its parent Suzuki Motor Corp. and Toyota Motor Corp. that seeks to take advantage of emerging trends in the automobile industry such as a push towards green technologies and autonomous driving.

The government has an ambitious target of having an all-electric fleet of vehicles on India’s roads by 2030, which could disrupt the entire automobile industry ecosystem. The government has put the industry on notice to shift from manufacturing vehicles that run on petrol and diesel to environment-friendly alternatives to reduce pollution in cities and cut dependence on crude oil imports.

In the three months to September, Maruti’s profit rose 3.4% to Rs2,484.3 crore, from Rs2,401.5 crore a year ago. Net sales rose 21.8% to Rs21,428.1 crore, largely because of a better product mix that helped increase what the company earned from every car it sold. Maruti sold a total of 492,118 vehicles during the quarter, up about 18% from a year ago.

The company’s earnings beat estimates. A Bloomberg poll of 22 analysts had expected Maruti to post a net profit of Rs2,227 crore on net sales of Rs22,020.3 crore.

The company said net profit growth was slow because it earned less non-operating income. Yields on investments were lower than the year-ago period, the cost of some commodities and advertising expenditure went up and effective tax rates were higher, it said.

The company’s results beat the expectations of Bharat Gianani, research analyst at Sharekhan Securities, who said Maruti had reaped the “benefits of operating leverage on back of robust volume growth, lower-than-anticipated discounting and favourable forex movement”.

Maruti is not sure it can maintain the sales growth trajectory, largely because of production constraints at its parent’s manufacturing unit in Gujarat.

Maruti has a contract manufacturing agreement with Suzuki Motor Gujarat, a Suzuki unit, under which it buys products at cost price.

“The outlook for the year remains. We will grow in double digits. Don’t expect 19-20% growth to continue. I don’t think it will,” Bhargava said.