 "Maruti drives home with threefold increase in profit")
The firm has beaten profit estimates of the Street largely due to favourable foreign exchange movement, which helped improve export realisations, cost-reduction efforts and price increase across its product range. During the quarter, the company’s net sales rose 26.5 per cent to Rs 10,212 crore, on the back of a 15 per cent year-on-year (y-o-y) increase in volumes to 241,562 units. Even though the second quarter is considered to be weak, Maruti’s volumes grew 3.4 per cent sequentially.
The company’s net profit for the quarter nearly trebled to Rs 670 crore though the after-tax profits are not strictly comparable as the results in the quarter under review include the benefits of merger with engine production unit Suzuki Powertrain India.
Low base
Additionally, the strong numbers have come on a low base as the firm had a month-long lock-out at its Manesar facility in the year-ago period. Sequentially, too, the company has done well with the after-tax profit growing by 6.1 per cent quarter-on-quarter. “The increase (in net profit) was due to higher localisation efforts undertaken by the company. Material costs have come down significantly. Foreign exchange rates have been favourable. These are the two significant initiatives, which contributed to our profits. The company also increased the price of its products, which along with higher volumes, helped maintain margins,” said Ajay Seth, chief financial officer at Maruti Suzuki.
The company clocked foreign-currency gains of Rs 164 crore during the quarter, which added 1.6 percentage points to the operating margin. The firm’s operating profit margin rose to 12.9 per cent during the quarter, against 8.3 per cent in the year-ago period. The auto maker had reported operating margins of 11.3 per cent in the first quarter of FY14.
Kenichi Ayukawa, managing director and chief executive of Maruti Suzuki, said: “The market slowdown continued in the second quarter of this financial year. Slowing GDP growth rate, high fuel prices and inflation have affected consumer sentiments. Sales remained under pressure.”
Sales growth for the company has come because of focused marketing initiatives, better product planning and inventory management and increased off-take in rural areas. Rural sales have grown by 24 per cent to account for 31 per cent of Maruti Suzuki’s overall volumes in the quarter. The company expects to close the year with a marginal growth in sales numbers. Volume growth in the domestic market is estimated to decline by two to four per cent for the entire financial year. Maruti’s exports, too, have shown an impressive increase of 66.6 per cent, y-o-y, to 34,024 vehicles. According to analysts, this would have also helped realisations during the quarter, with a sharp fall in the rupee.
During the quarter, the average discount across Maruti Suzuki models, however, rose to Rs 17,500 against Rs 13,000 in the year-ago period. “Discounts are at a peak. Sales of diesel vehicles have slowed down with the price differential between the two fuels dropping to around 20 per cent now from 32 per cent earlier. Sales of petrol vehicles, however, have picked up in the market,” informed Mayank Pareek, chief operating officer (sales and marketing) at Maruti Suzuki.
According to industry estimates, share of diesel vehicles in the overall passenger vehicle sales in the domestic market has dropped to 53 per cent in the past quarter, compared to 63 per cent a year earlier. Petrol vehicle sales have increased by 16 per cent in the same period. Shares of Maruti Suzuki were trading at Rs 1,513 a piece, up 0.4 per cent from the previous close on the BSE exchange.