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| Maruti Suzuki: Roadblock |
| Shobhana Subramanian & Varun Sharma / Mumbai Oct 25, 2008, 00:12 IST |
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Lower volumes and cost pressures hurt the country’s largest car-maker's profitability.
 India’s largest car maker disappointed the street by turning in lower than expected numbers for the September quarter as sales volumes dipped and costs escalated. Maruti’s operating profit declined by 27 per cent at Rs 516 crore as higher raw material prices and employee cost hurt the company.
If net sales grew 6.1 per cent y-o-y in Q2, it was because of a 7.1 per cent increase in average unit realisations. While Swift and DZire continue to do well, there are fewer buyers for the Alto, Wagon-R and Zen. Overall volume sales fell 2.5 per cent though volumes for the mid-size segment went up 33.5 per cent y-o-y. Exports volumes grew 17 per cent in Q2, but are still under 10 per cent of total volumes.
Higher interest rates and banks’ reluctance in increasing their auto loan exposure has resulted in lower demand for automobiles. However, peer Hyundai has done much better in Q2, growing volumes by over 20 per cent, though on a lower base.
Maruti’s raw material costs as a percentage of sales grew by 80 basis points y-o-y while employee costs as a percentage of sales rose by 40 basis points. Its operating profit margin fell by nearly 500 basis points to 10.3 per cent.
The net profit was down 36.5 per cent y-o-y at Rs 296 crore. This was partly due to a change in Maruti’s depreciation policy since June 2008 quarter – the company will write off assets over a shorter period — resulting in an 88 per cent y-o-y increase in the depreciation to Rs 166 crore.
The firm has also increased Swift and Dzire production to meet rising customer demand, which will improve average realisations further. Analysts predict some volume gains from the A-Star, which will be launched in mid-November in India. Maruti is focusing on exports as well to counter the lower demand in India, and A-Star exports, which will begin in Q4 FY09, should help.
There is some solace that raw material and crude oil prices are falling and the company has hiked prices marginally, but the problem of lower demand for passenger cars is not going away quickly. As stock markets tumbled on Friday, Maruti also fell 9.9 per cent to Rs 534.
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