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Business News/ Companies / Company Results/  Maruti Q3 net profit stays subdued despite tax relief, cost cuts
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Maruti Q3 net profit stays subdued despite tax relief, cost cuts

Maruti’s muted performance indicates the slowdown is far from over and heavy discounts to reduce stocks are hurting financials
  • Net sales rose 3.8% to ₹19,649.1 crore, as vehicle sales rose just 2% to 437,261 units, despite the firm offering discounts
  • Maruti's net profit rose 5.2% to ₹1,564.8 crore in the three months ended 31 December from ₹1,489.3 crore a year ago (Photo: Reuters)Premium
    Maruti's net profit rose 5.2% to 1,564.8 crore in the three months ended 31 December from 1,489.3 crore a year ago (Photo: Reuters)

    New Delhi: Maruti Suzuki India Ltd, the country’s largest carmaker, on Tuesday said its fiscal third quarter profit rose 5.2% from a year earlier on lower taxes, cheaper inputs and cost-cutting efforts.

    Net profit rose to 1,564.8 crore in the three months ended 31 December from 1,489.3 crore a year ago. Net sales rose 3.8% to 19,649.1 crore, as vehicle sales rose just 2% to 437,261 units, despite the firm offering discounts.

    A Bloomberg survey of analysts expected profit at 1,586.8 crore and revenue of 20,876.6 crore. Shares of Maruti Suzuki fell 2.05% on BSE on Tuesday, while the benchmark Sensex index declined 0.46%.

    Passenger vehicle sales in India have steadily declined since August 2018 as payment defaults by Infrastructure Leasing and Financial Services triggered a liquidity squeeze that spread to other shadow banks, including those that financed vehicle purchases. Increase in vehicle prices due to the introduction of new safety and emission norms dampened demand further.

    Maruti Suzuki executive director (sales and marketing) Shashank Srivastava said the company has raised prices less than most of its rivals, and that will give it an edge in the months ahead and Maruti’s share in petrol engine car sales should also go up as a result.

    “During the quarter, additional car buying has come down but replacement of vehicles by customers increased. Also, discounts have come down and that’s across the industry. There won’t be much room for pre-buying since we don’t have much stock. Out of the 52,000 units of stock we had at the end of the quarter, only 8,700 units were diesel vehicles," Srivastava said at a conference call with analysts.

    The company’s earnings before interest, tax, depreciation and amortization grew 8.9% to 2,102 crore from 1,931 crore a year ago. Total tax paid by the company during the quarter was 22% lower at 441.5 crore.

    Maruti’s operating margin widened 30 basis points to 10.1% during the quarter, despite heavy discounts, and advertising and marketing costs. The muted performance indicates the slowdown is far from over and heavy discounts to reduce stocks are hurting financials.

    Average discounts offered by the New Delhi-based automaker during the quarter soared 37.5% to 33,000 from 24,000 a year ago. Consequently, the realization per unit fell 5.7% year-on-year to 4.7 lakh per unit.

    According to Ajay Seth, chief financial officer of Maruti Suzuki, one of the reasons the margins were lower than expected was the higher discounts offered during the quarter. Without them, margins would have expanded another 130-140 basis points, he said.

    Despite an economic slowdown, Maruti Suzuki said it would spend 4,000 crore on capital expenditure in the year to 31 March. The company also raised its vehicle production target for the March quarter by 6% during the quarter.

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    Published: 28 Jan 2020, 02:47 PM IST
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