Maruti profits up on lower input costs

October 25, 2009: Maruti Suzuki India, the country's largest car maker, expects buoyant demand in the domestic market to help notch double-digit growth for the rest of the year, after it posted better-than-expected 93% jump in profits to Rs 570 cr for the September ended quarter.

It sold 2.09 lakh cars, led by Estilo, A-Star and the Ritz which is 22% more than what it sold in the same quarter last fiscal.

The company said its sales promotion initiatives like direct selling to government employees and the rural markets kept the graph rising and claimed that urban demand is back in the positive territory after a year of flat growth. Maruti MD and CEO S Nakanishi said, "Sales to institutions and private companies employees are on the rise. We are cautiously optimistic on India even as we closely watch interest rates, liquidity in the market, inflation and the rising fuel prices."

While the major part of the profit was led by lower raw material prices, the hardening of input costs in recent months could impact its margins in the coming quarters, though the company ruled out any immediate price hike. Mr Nakanishi said the company would try to absorb the costs before it decides to pass it on to the customers. "Besides, if the Yen appreciates, our cost of direct and indirect imports will also go up which could impact our profitability in future," he added.

The company aims to export 1.3 lakh cars in the fiscal. It has already shipped 66,419 cars to various overseas markets in the April-September period.

With the cash incentive for buying new cars coming to an end in Europe, Maruti would expand exports to other alternative markets. It has already started exporting the A-Star under Celerio brand to Latin America and South Africa during the second quarter itself.

Maruti's total income rose 44% Rs 7,202 cr in the second quarter over Rs 4,993 cr of the previous year. The higher income raised its margins to 13% in the same quarter from 10.7% posted in the September 2008. The government's stimulus packages, low interest rates, improved financing by government banks were the main factors contributing to good sales and improved financial results, the company said.

Taking a long-term view on the Indian market, Maruti will invest Rs 150 crore at its Gurgaon plant for its modernisation and re-structuring production. It aims to roll out 90,000 extra cars from the same plant next year, which currently makes 6 lakh cars per annum.

Source: The Economic Times