Incurs foreign exchange loss of Rs 121 crore.
Catching market analysts by surprise, the largest manufacturer of cars in the country, Maruti Suzuki, reported a dip in its net profit by 18.31 per cent for the fourth quarter ended March 2009, at Rs 243.1 crore, compared with Rs 297.6 crore in the same period last year.
The sharp dip, said the company, was on account of forex losses on the dollar-rupee contracts it entered to hedge against currency fluctuations arising out of export receivables. “We incurred a loss of Rs 121 crore, which we realised in the fourth quarter. We pegged the dollar between Rs 41-42 levels,” said Ajay Seth, CFO of Maruti Suzuki. “As on March 31, around a third of our foreign currency exposures are currently hedged.”
Six analysts Business Standard spoke to had expected the net profit to be around Rs 360 crore, much higher than last year.
“Despite the brilliant performance, especially for the January–March 2009 quarter, when it saw 12 per cent surge in sales, this sharp dip in net profit for the March quarter is perhaps the first seen in the last seven years,” said Vaishali Jajoo, analyst at Angel Broking. However, the Maruti Suzuki stock closed today at Rs 802.25, an increase of 2.6 per cent over yesterday’s close of Rs 799.65.
From April 2008 to March 2009, the company sold 722,144 units of cars in the domestic market. This is only 1.45 per cent growth in numbers against the units sold last year. Maruti exported a record 70,000 cars, a jump of 32 per cent from last year. As already mentioned, there was 12 per cent growth in sales for the fourth quarter, which stood at Rs 6,432.90 crore.
For the full financial year ended March 31, the company’s sales stood at Rs 20,852.52 crore, a 13.48 per cent growth against Rs 18,375 crore last year. However, net profit for the full financial year dipped substantially by 29.59 per cent to Rs 1,218.74 crore as against the Rs 1,730 crore last year.
Maruti Suzuki, however, was able to increase its market share from 51.4 per cent in 2007-08 to 52.2 per cent, though many new cars were launched by competitors. Overall, for the full financial year, while passenger vehicle industry sales grew by just 0.13 per cent, Maruti Suzuki’s grew by 1.45 per cent.
“Growth for the full year, despite the overall slowdown in the industry, came on the back of many factors. First, we see strong demand for our brands like the Swift Dzire. Then, the support from the government, like the excise duty cuts on small cars. Demand also came from the VI pay commission payouts, which helped us sell more cars in the last quarter and is expected to continue for the quarters in the new fiscal,”said Shinzo Nakanishi, managing director of Maruti Suzuki.
Mayank Pareek, executive officer (marketing sales) also attributed the performance more to the rural segment, which hasn’t shown signs of a slowdown. “We continue to see brisk demand for our cars from the rural segment. It contributed 3.5 per cent to our total sales last year and is now around 8.5 per cent of our sales.”
“On the back of a pick-up in economic growth in 2009, the launch of new brands like the upcoming Ritz next month and the effects of the Pay Commission, which will continue over the coming months, we forecast growth of around 8 per cent in Maruti’s total sales for FY 2010,” said S Ramnath, analyst at IDFC SSKI Securities. Angel Broking’s Jajoo expects net sales growth (turnover) of around 12 per cent for 2009-10.
Growth for the company in this fiscal could come from a variety of factors. One is the impact of softening commodity prices. According to Nakanishi, the benefits of lower prices will be realised with a lag, which is usually a quarter period. Then, profit margins for the current fiscal will improve when the company turns into a net importer by next year. “We plan to go for increased localisation, which will help us minimise the losses arising out of wild currency fluctuations like the strong yen,” said Ajay Shah, CFO of Maruti Suzuki.
Imports of auto ancillaries amount in value to 22 per cent of the company’s sales revenue, and these are denominated in currencies like the yen.
Growth for Maruti would also come from increased exports. According to the company, the A-Star model has got a good response from key markets in Europe.
“On our contract manufacturing deal for Nissan, we supplied 2,000 units of A-Stars for the company this April and hope to supply about 30,000 units for Nissan by the end of 2009,” Nakanishi said.