Maruti Suzuki Q2 net up 29% at Rs 862 cr

Board recommends increasing FII limit to 40%; dividend pay out ratio in range of 18-30%

The country’s largest car maker, Maruti Suzuki India Limited (MSIL), on Thursday reported 29 per cent increase in the net profit to Rs 862 crore for the second quarter ended September, on the back of cost reduction efforts and strong growth in domestic sales. The company had posted net profit of Rs 670 crore in the corresponding period of the previous financial year.

The board of directors on Thursday decided to recommend increase in the FII (foreign institutional investment) limit to 40 per cent, broadly the level of public shareholding. This is subject to shareholder approval in a general meeting and notification by the Reserve Bank of India (RBI).

The board approved the adoption of a guideline to keep the dividend payout ratio 18-30 per cent of the net profit, up from 10-15 per cent.

Maruti Suzuki is yet to decide on a date for the minority shareholders’ vote to allow parent Suzuki Motor to set up a facility in Gujarat.

Chairman R C Bhargava said, “We are looking at commissioning the Gujarat unit in May-June 2017. We have to look at the convenience of shareholders in deciding the dates for voting. But to ensure the project does not get delayed, we have started the construction work.” Maruti Suzuki has invested Rs 100 crore in the unit.

Bhargava added the company had capacity to meet market requirements in two years. Maruti Suzuki registered sales of 321,898 cars in the quarter, an increase of 17 per cent over 275,586 in the year-ago period.

Bhargava said, "The situation is not as bright as many had hoped for. Maruti has had better growth at 17 per cent in the quarter and at 14.7 per cent in the first half of the year but the industry is not doing good. Without us, the industry growth will be in the negative territory." The net sales in the quarter went up 17.5 per cent to Rs 11,996 crore from Rs 10,212 crore in the year-ago period.

Bhargava said the pace of growth of the company was expected to slow in the second half of the year on the high base effect. He said, "For the financial year, we are expecting over 10 per cent sales growth but in the second half the growth rate in terms of percentage will be slower compared to the first as the base was higher in the second half last year."

Bhargava said, "Many shareholders have said we provide a dividend policy in the interests of providing greater transparency."

"The actual dividend for each year would be decided by the board taking into account the availability of cash, the profit that year and the requirements of capital investments." He said a reason MSIL had  been able to increase the dividend ratio was the decision of Suzuki to invest in Gujarat.

On increasing the FII limit, Bhargava said many domestic and foreign investors had told the company the 24 per cent cap was "an unnatural restriction."

When MSIL was listed in 2003, FII shareholding was limited to 24 per cent according to the Foreign Exchange Management Regulations, 2000, and the FDI policy. This limit was reached about a year and a half ago. As a result of this, Maruti Suzuki went out of the MSCI index where the availability of room to buy shares is a precondition in the Index. MSCI is a provider of investment decision support tools to over 6,000 clients worldwide. Maruti Suzuki said many global funds benchmarked with this index and their shareholding in a particular stock depended to some extent on the weight of the stock in this index. This has a bearing on the stock price of the company also.

The results came during market hours and were in line with estimates on the revenue front, while being higher than expectations on the profit front.

Shares of Maruti Suzuki were trading at Rs 3,242.15, up 1.14 per cent from the previous close on the Bombay Stock Exchange (BSE).