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Maruti Suzuki's net drops 35% on falling sales, higher costs

Saturday, 26 April 2014 - 6:50am IST | Place: Mumbai | Agency: DNA
Co to focus on exports, rural markets this fiscal

Maruti Suzuki, India's biggest carmaker, on Friday reported a 35.5% year-on-year drop in its net profit for the fourth quarter of the last fiscal as it sold fewer vehicles due to ongoing economic slowdown and incurred higher expenses.

Net profit for January-March dropped to Rs 800 crore as against Rs 1,240 posted a year ago.

Analysts on an average were expecting a net profit of Rs 910 crore, as per estimates by Thomson Reuters.

Despite the launch of its new hatchback – Celerio -- company's domestic sales during the quarter fell 3% to 298,596 units from 308,871 units in the year-ago period.

Lower volumes, higher promotional expenses and stock compensation to dealers due to reduction in excise duty impacted the company's bottomline, a company statement said.

According to analysts, the major impact came from the expenses paid by the company on account of dealer compensation and higher employee costs.

The company paid Rs 143 crore during the quarter as dealer compensation due to reduction in excise duty, a company official said in an earnings call.

The government had cut excise duty 4-6% during the interim budget in February.

On the outlook, company's management told analysts that it is expecting a small recovery in the short to medium term.

"We will also launch new products and enter new segments this year," Ajay Seth, chief financial officer, Maruti Suzuki, told analysts.

Celerio was the only big launch from the company in the last fiscal. The company said it would look at launching 2-3 products this fiscal.

The company is looking at a capex of around Rs 4,000 crore in the current fiscal, compared with Rs 3,500 crore in the last, which will be spent on new product launches, research & development, and marketing and promotions.

Discounts continued during the quarter, in order to push sales in the market. However, its average discounts came down to Rs 17,500 in Q4 compared with 19,400 in Q3 of FY14.

"Enquiries are increasing, however they (customers) are deferring purchases. The continuation of discounts will depend on the market situation," said a company executive.

Maruti Suzuki is looking at increasing its rural network this fiscal and is targeting a 10% export growth. Rural currently contributes around 32% to the company's overall sales.

On the exports front, the company said it is looking at newer markets such as Africa and Europe and will be launching more products internationally.

For analysts, Maruti's performance was below estimates.

"However, new products launches, pent-up demand and higher rural exposure will benefit the company in this fiscal," said Yaresh Kothari, analyst with Angel Broking.

"Maruti Suzuki's operating performance was below our estimates, with Ebitda margins at 10.3%. We expect margins to revert to 12%+ levels this quarter onwards. The company has guided for a volume growth of 5-6% in the domestic market for this fiscal with exports likely to grow at 10%. We reiterate that Maruti Suzuki is the best play on the recovery in the macroeconomic situation," said Surjit Singh Arora, analyst with Prabhudas Lilladher.




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