Diesel cars help Maruti post profit growth after 18 months

Last Updated: Sat, Jan 26, 2013 05:37 hrs

Maruti Suzuki India Ltd on Friday more than doubled its net profit to Rs 501.3 crore in the third quarter ended December 31, 2012.

This was the first increase in quarterly profits in 18 months for the country's largest automobile maker, after a turbulent period marked by labour unrest, production disruptions and slow sales in the domestic market.

Profits improved on a low base and higher volumes on account of strong demand for new launches of the Swift DZire and Ertiga. Hit by nearly three weeks of disruption in production at its Manesar unit in October 2011, Maruti Suzuki had posted a 63.6 per cent decline in net profit at Rs 205.6 crore in the third quarter of the last financial year.

Maruti Suzuki shares gained 4.15 per cent to close at Rs 1,600.20 on the BSE.

Commenting on the results, Maruti Suzuki Chairman R C Bhargava said, "Yes, we are coming back to normal levels of growth and margins as we used to do earlier. The good result has been primarily because of high production led by diesel cars and reduction in costs. In October-December last year, we had just got out of a strike and were, therefore, not able to ramp up production. And, there was the diesel factor; we did not have so many diesel cars." He said the next quarter was also expected to be good, with stable volumes. There would be no issues in production and the benefits of yen depreciation in Q3 would reflect in the last quarter.

Diesel vehicles, on which there are no discounts, account for nearly 38 per cent of the company's sales. In the period under review, Maruti Suzuki outperformed passenger vehicle sales in the domestic industry, clocking volume growth of 27 per cent. According to Society of Indian Automobile Manufacturers' data, the industry grew 11 per cent in the same period. Overall, net sales during the quarter increased by 45.6 per cent to Rs 10,956.95 crore against Rs 7,527.10 crore in the year-ago period. Growth in volumes was largely driven by a more fuel-efficient version of the Alto (launched in October) and diesel variants of the DZire and Ertiga, on which no discounts were given.

Yaresh Kothari, research analyst (automobile), Angel Broking, said, "While the top line (up 35 per cent q-o-q) was broadly in line with our estimates, bottom line was slightly ahead despite higher tax rate (at 26 per cent as against 19 per cent in 2QFY2013), driven by EBITDA margin expansion. The EBITDA margin improved by 2.75 per cent, led by favourable product-mix, higher export realisation, operating leverage benefits and favourable currency movement."

Analyst Arun Agarwal, auto analyst, Kotak Securities, said: "Expected passenger car demand improvement, coupled with strong product portfolio, is expected to help Maruti post healthy volume growth in FY14. Margins in FY14 should receive a boost from the depreciating yen."

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