Maruti foresees bumpy drive in this quarter, too

Maruti Suzuki, the country’s largest car maker, on Monday reported fourth-quarter earnings in excess of Street estimates, but gave out a cautious view of the road ahead.

“Both footfalls and conversion rates (the number of inquiries actually converted into sales) have been down. The market is stressed and this has been the case since January,” Mayank Pareek, managing executive officer (sales and marketing), Maruti Suzuki India, said in a conference call with analysts.

Higher fuel prices and increase in borrowing costs have affected vehicle demand since January, Pareek said, adding that “discounts are unlikely to come down” in the near future.

Maruti offered an average discount of `10,500 per vehicle last fiscal.

Sales during the year ended March 31 were up 25% at a record 1.27 million vehicles. Maruti sold 343,340 cars
and sport-utility vehicles during the quarter, an increase of 19.5%.
For the current fiscal, the company made a moderate sales growth forecast of 10-15%, given the slowdown in retail sales, steep increase in commodity prices and a continuous fluctuation in the Japanese yen.

On currency fluctuation, chief financial officer Ajay Seth said 40% of the company’s yen exposure has been covered for FY12 but the remaining 60% is still open to market vagaries.
The currency hedging assumes significance since Maruti barely managed to avoid a decline in net profit during the fiscal fourth quarter due to costlier yen because of record vehicle dispatches. Net profit for the quarter was in fact up 0.5% year on year at `660 crore though full-year net profit was down 9.23% at `2,382.37 crore.
The company had seen a 26% decline in net profit in the December quarter, hit by higher raw material costs and increased royalty payments to parent Suzuki Motor Corp.
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During the March quarter, Maruti had to spend `759.8 crore to buy steel, aluminium and other raw materials, an increase of 24% from a year earlier.
The company has raised vehicle prices twice since January to offset higher input costs but officials said a further upside in material costs cannot be ruled out. According to the officials, steel is expected to rise 10-15%. Copper and natural rubber prices are also expected to harden.
The company is still negotiating annual contracts and clarity on input costs will emerge once the contracts are signed, said the officials.
Other expenses during the period rose 31% to `1,066 crore, including royalty payments to Suzuki for new and existing vehicles.
Expenditure on research and development is expected to rise to 1.3-1.4% of net sales this fiscal from 1.1% in the last, officials said.