Maruti Suzuki Q1 profit jumps 56 percent; lower costs, higher sales

Maruti Suzuki Q1 profit jumps 56 percent; lower costs, higher sales

Maruti Suzuki India Ltd(MRTI.NS), India’s top-selling carmaker, said on Tuesday first-quarter net profit rose 56 percent helped by lower costs, favourable foreign exchange rates and higher sales, but still missed bullish analyst estimates.

Maruti, controlled by Japan’s Suzuki Motor Corp (7269.T), said profit for the April-June quarter was 11.9 billion rupees ($185.94 million), up from 7.6 billion rupees in the same period a year earlier. Analysts had expected a profit of 12.35 billion rupees, according to Thomson Reuters I/B/E/S.

Net sales rose about 18 percent to 130.8 billion rupees, the company said, as India’s car trade continues to grow. India is expected to become the world’s third-largest car market by 2020, moving up three places.

“During the quarter, higher volumes, cost reduction efforts, lower sales promotion expenses, and favourable foreign exchange helped improve the performance,” the company said in a stock exchange statement.

Total expenses as a percentage of net sales fell to 91 percent during the quarter from about 96 percent in the year ago period, while finance costs were halved to 190.4 million rupees. Maruti, which imports certain car components from Japan and also pays royalty to its Japanese parent, Suzuki, is benefiting from the yen’s weakening.

The carmaker, which sells about one in every two cars in India, wants to increase its share of the premium car segment at a time when rivals like Honda Motor Co (7267.T) and Ford Motor Co (F.N) are launching cheaper, compact cars – Maruti’s mainstay.

Maruti has had little prior success in the premium segment and is now planning an aggressive rollout of new vehicles and dealerships to capture buyers with deeper pockets – a move that is expected to boost margins and profits, say analysts.

Next week Maruti will launch the S-Cross – a crossover between a sport-utility vehicle and a hatchback – the first car to be sold at its new Nexa showrooms. These spruced-up showrooms will differ from existing dealerships in design and service, managing director Kenichi Ayukawa said recently.

“It is a very good strategy because as income levels rise we will see that more and more consumers will prefer premium vehicles,” said Nitesh Sharma, auto analyst at Mumbai-based brokerage, Phillip Capital, adding that it will boost margins.

Shares in Maruti, valued by the market at about $20 billion at Monday’s close, were trading 0.5 percent higher at 4,200 rupees a share at 0850 GMT in a weak Mumbai market.

Maruti’s shares have risen more than 25 percent since January – the highest among major automobile companies in India.

 

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