Co takes one-off impact of compensation to dealers for tax loss incurred on vehicle stock during transition to new tax regime
Maruti Suzuki, the country's top carmaker, has reported a smaller 4.4% year-on-year rise in net profit for the April-June quarter at Rs 1,556.4 crore due to the impact of goods and services tax, higher commodity prices and sales promotion & marketing expenses.
A Bloomberg survey of analysts had forecast the Gurgaon-based company to increase its earnings to Rs 1,705 crore.
"Growth in volumes, favourable product mix, higher non-operating income and cost reduction efforts contributed to increase in profits. However, costs were impacted by higher commodity prices, and sales promotion & marketing expenses. During the quarter there was a one-off impact of compensation given to dealers for the tax loss incurred on vehicles in the stock at the time of transitioning to GST," the company said on Thursday.
In order to push the sales during the pre-GST period, almost all the major automobile companies had gone for massive advertisements and promotions and offered discounts on most of the vehicles.
The auto companies promised to compensate the dealers to a certain extent on sale arising during GST transition. These were among the prime reasons to have dented the profits of manufacturers, experts said.
Earlier, Bajaj Auto had posted a 5.6% drop in quarterly profit due to a ban on BS-III vehicles and the transition to GST. The company paid Rs 32 crore as compensation for losses incurred by the dealers due to new tax regime implementation.
Maruti Suzuki's net sales rose 16.7% to Rs 17,132.4 crore for the quarter under review.
During April-June, the company sold a total of 3,94,571 vehicles, including 26,140 units in overseas markets, a growth of 13.2%, over the same period of the previous year.
Analysts tracking the sector said the company's huge market share is unlikely to get challenged in the short term. "Today, MSIL is a virtual monopoly, a trend we see only consolidating over the next 3-5 years. While the company has done a catch-up on the premiumisation bandwagon very well, competition has gone back to the drawing board to recalibrate the strategy (including exiting domestic market). It has not only increased market share (900 basis points in five years) but is also expanding its dominance across other key areas—product launch cycle (2-3 launches every year), distribution reach (trebling on a high base), margin and free cash flow cycle," a recent report by Edelweiss Securities said.
Maruti Suzuki, which has a market share of a little over 49% is not only leading in the car market but also in the utility vehicle and van segments. The company, which is the largest and most profitable unit of Japan-based auto major Suzuki, sells one of two cars sold in the Indian market.
TAXING TIMES
- During April-June, Maruti sold a total of 394,571 vehicles, a growth of 13.2%, over the same period of the previous year.
- Bajaj Auto had posted a 5.6% drop in quarterly profit due to a ban on BS-III vehicles and the transition to GST
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Earlier, Bajaj Auto had posted a 5.6% drop in quarterly profit due to a ban on BS-III vehicles and the transition to GST. The company paid Rs 32 crore as compensation for losses incurred by the dealers due to new tax regime implementation.
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