Maruti Suzuki unable to report strong earnings

The Suzuki-controlled company reported a net profit of Rs 206 crore in the quarter ended December 31, 2011 against Rs 565 crore in the same period last fiscal. The company’s sales volume declined 28% in the October-December 2011 quarter as demand was hit in the domestic market due to negative factors impacting the car industry, and also by the crippling strikes at Maruti’s Manesar plant. “Unit sales in the quarter were impacted by sluggish market conditions caused by higher fuel prices and interest rates. Additionally, the company lost around 40,000 units in production due to the industrial relations problem at Manesar,” the company said.

Maruti’s poor showing comes in after two-wheeler majors Hero MotoCorp and Bajaj Auto reaped a doubledigit growth in profit, riding on higher sales. For Hero MotoCorp, the country’s biggest bike maker, profit was up 43% at Rs 613 crore against Rs 429 crore in the corresponding period of the previous year. Bajaj Auto’s profit was up 19% at Rs 795 crore against Rs 667 crore in the same period of the previous year.

    Despite the sluggish earnings, Maruti’s shares ended the day higher on the Bombay Stock Exchange, at Rs 1163, up 5.7%. Net sales revenue for Maruti was lower by 17% at Rs 7,664 crore against Rs 9,277 crore in the third quarter of the previous fiscal. Company officials, in a conference call with investors, were cautious on the outlook.

    Depreciation of the rupee has also hit the company’s earnings as it has made its imports, directly and indirectly (through vendors), dearer. Apart from this, the rupee depreciation has also impacted royalty outgo to parent Suzuki. “The year-onyear forex impact in the quarter was to the tune of Rs 200 crore. This was on account of direct and indirect imports, royalty outgo and reinstatement of liabilities partially offset by export gains,” Maruti CFO Ajay Seth said. The company said it is hedging forex exposure not only for itself, but also for vendors.

    A higher treasury income of Rs 160 crore in Q3 came to the rescue of the company. This income was Rs 130 crore in the same period last year. Maruti’s net profit in the nine months ending December 31, 2011, was down by 39% at Rs 995 crore against Rs 1629 crore in the same period of the previous fiscal. The company registered net sales of Rs 2352 crore in the period, a decline of 10% over the same period in the previous year.