Net profit jumps 29% to Rs 863 crore for July-September quarter; Sales up 17.5% to Rs 12,304 crore
Maruti Suzuki, India's biggest carmaker, on Thursday said it has started witnessing a demand recovery in the urban markets, which was under pressure owing to the slowdown in the economy.
Talking to analysts in a conference call post the announcement of its second quarter financial results, the company said, "The biggest story this year is that the urban demand is coming back. We expect a 10% growth coming from top cities in the country," a company executive said.
Urban customers, that traditionally accounted for a large share of car sales, had been postponing their purchases in recent past on account of factors like increasing fuel prices, high interest rates and an overall slowdown in the economy.
However, with signs of recovery in the economy, a pent-up demand has led to certain growth in demand. "We are excited by the urban recovery. Our new products are also designed to leverage this trend," the company said during the conference call.
According to the company, its newly launched products like Celerio and the mid-size sedan – Ciaz were launched keeping in mind the requirements of the urban customers. The company will also launch two sports utility vehicle (SUVs) in the next two fiscals. It is planning to launch a bigger SUV in FY15, while a compact SUV will be introduced in FY16, the company said.
Talking about the revival in car sales, the company cautioned that the industry demand is not broad-based yet. "Next 6 months could be tough, we would see the actual demand coming back in the next fiscal. We are however looking a growth of 10% this fiscal," the company said.
It further said the discounts on cars are at all-time high currently. The company has marginally increased the discounts on its cars in Q2 from an average of Rs 21,000 in Q1 of this fiscal. "The discounts can only be reduced once the actual demand comes in place," the company executive said.
Meanwhile, the company reported a 29% increase in net profit at Rs 863 crore for the quarter ended September 2014 compared to Rs 670 crore in the same period a year ago.
Total sales for the company increased 17.5% to Rs 12,304 crore for the reporting quarter from Rs 10,468 crore in the September quarter 2013. Volumes grew by 17% y-o-y as the company sold 321,898 vehicles during the quarter.
Realisation per vehicle was reported at Rs 372,675, which grew marginally by 1% y-o-y. On the operating front, EBIDTA margins at 12.4% declined marginally by 20 basis points on y-o-y basis.
Bharat Gianani, research analyst - automobile, Angel Broking, said, "Maruti Suzuki results are ahead of our estimates on account of lower taxation and higher other income even as the operating performance was in line. Raw material expenditure as percentage of sales increased 190 basis points year-on-year thereby exerting pressure on margins."
Arun Agarwal, auto analyst, Kotak Securities, said, "We expect the domestic passenger car demand to stay strong over the next couple of years. Recovery in entry level car segment and new launches will be the key volume growth driver for Maruti Suzuki. Operating margins is expected to receive support from reduction in discounting and positive operating leverage."
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