The country’s largest car maker Maruti Suzuki India Limited (MSIL) today reported a decline in quarterly net profit for the fifth consecutive month on back of labour troubles at its Manesar unit and higher discounts to push sales of petrol vehicles. Net profit for the company fell by 5.4 per cent to Rs 227.50 crore for the quarter ended Sep 30 as compared to Rs 240 crore it had posted in the corresponding period in the last financial year.
Maruti Suzuki’s net sales for the quarter, however, grew by 8.5 per cent to Rs 8,070 crore as against Rs 7,436 crore the company had posted for the same period last year on account of robust demand for new model Ertiga and higher exports realisation. The growth happened despite overall vehicle sales (including exports) dropping by 8.7 per cent to 230,376 units in the period.
Shinzo Nakanishi, managing director and chief executive officer, MSIL said, “We suffered production loss of 77,000 units due to the strike at labour violence at Manesar. We had declared lock-out at the facility for around a month which impacted production of diesel vehicles for which there is high demand.” The company sold 2,09, 954 units in the domestic market, which is lower by 5.9 per cent than 2,22,406 units it sold in the same period last year.
"In the first half while demand for petrol cars dropped by 20 per cent, that of diesel vehicles increased 40 per cent”, said Mayank Pareek, chief operating officer (sales & marketing), MSIL. To improve the subdued demand for petrol cars, the company enhanced sales promotion measures, which also impacted the profitability.
The company offered average discounts of Rs 14, 750 per vehicle during the second quarter, which is almost Rs 2,000 more than Rs 12,600 it offered in Q2 last fiscal. Ajay Sheth, chief financial officer, MSIL informed, “The sales mix was affected due to disruption in production of diesel cars. Discounts were at an all time high. These factors had an adverse impact on our margins.”
Adverse foreign exchange movement had an impact of Rs 350 crore in the July-September period, which was partially mitigated by exports realizations. The company paid Rs 432 crore as royalty, which is 5.4 per cent of its nets sales, in the quarter as against Rs 432 crore in the same period last year.
When asked about the financial implications of the recently signed three-year wage settlement agreement with the workers, Sheth said: "Because of the settlement and regularization of contract workers the wage bill will increase by 0.15-0.3 per cent of the net sales over the next two years".
Maruti Suzuki expects sales performance to improve in the next six months. Pareek, added, “We expect the second half to be better. We recently launched the new Alto
which has already received over 30,000 bookings. Besides, we have an order backlog of 125,000 units, 90 per cent of which are for diesel models such as Swift, Dzire and Ertiga.”