Maruti eyes sales pick-up after 5th quarter of profit fall

Maruti Suzuki , India's biggest carmaker, expects sales growth to accelerate in the months ahead helped by the launch of new vehicles, after it posted a fifth straight quarterly profit decline.

Maruti, which until the middle of last year produced every other car sold in India, is looking to claw back market share after a deadly riot at its Manesar plant led to a $250 million production loss and high interest rates curbed demand.

The company this month launched a cheaper and more fuel-efficient version of its Alto, the world's best-selling small car, in time for India's festival season in October and November, when people typically make big-ticket purchases.

"On account of more festivals in this half, as well as year-end buying, which a lot of people do, that makes us confident that the second half will be better," said Maruti's managing executive director Mayank Pareek.

He was referring to the second half of the current financial year that ends in March.

High interest rates and fuel prices, and sluggish growth in Asia's third-largest economy are major concerns for carmakers in India, with an industry body slashing car sales growth forecast to just 1 percent to 3 percent in this fiscal year.

Car sales in India grew more than 20 percent in the fiscal year that ended in March 2011, attracting billions of dollars in investment from global automakers.

Maruti, controlled by Japan's Suzuki Motor Corp <7269.T>, said net profit fell to 2.27 billion rupees in the second quarter of the fiscal year, from 2.4 billion rupees a year earlier.

Analysts had expected net profit of 2.52 billion rupees, according to Thomson Reuters I/B/E/S.

Net sales rose 8.5 percent to 80.7 billion rupees, the company said, helped by its new Ertiga utility vehicle.

Maruti shares extended gains to as much as 4.2 percent after the earnings as the sales volume and profit margin figures were better than expected and traders bet on a pick-up in demand in the months ahead.

The stock ended up 2.1 percent at 1,390.80 rupees, while the benchmark Mumbai market index fell 1.1 percent.

Brokerge ICICI Direct said Maruti's EBITDA (earnings before interest, tax, depreciation and amortization) margin at 6.1 percent was better than its expectation of 5.6 percent.

MARGINS UNDER PRESSURE

The July riot at Maruti's Manesar factory that killed one and injured more than 100 people came after pay negotiations stalled, according to workers.

In September, the company increased wages at another plant, in Gurgaon, by around 18,000 rupees per month over three years and increased the proportion of permanent workers at Manesar.

"Effectively our margins will come down by 15-30 basis points," as a result of the wage and staffing agreements, said Chief Financial Officer Ajay Seth, adding that the impact would be felt over the next two years.

The rupee at the end of September was 12 percent weaker than 12 months previously, shaving 2 percent from Maruti's profit margins in the quarter as the company imports around 20 percent of direct and indirect costs and pays royalties to its Japanese parent.