Maruti reaps the auto harvest, net up 24.3%

Backed by the success of its latest hatchback launches --Zen Estilo and Swift Diesel --car market leader Maruti Udyog Limited (MUL) posted a net profit of Rs 448 crore for the fourth quarter ended March 2007, against Rs 361 crore in the corresponding period last year, an increase of 24.3 per cent.

The total income (net of excise) grew 37 per cent to Rs 4,634.7 crore in the quarter, as against Rs 3,392.2 crore last year. Its profit would have been higher had it not been for the merger of the Manesar unit under Maruti Suzuki Automobile India Ltd (MSAIL) with Maruti Udyog Limited. The former registered a loss of Rs 113 crore for the fiscal.

However, the operating margins at 17.4 per cent for the quarter were lower than the 18.4 per cent last year. MUL's net profit for fiscal 2007 jumped up by 31.4 per cent to Rs 1,562 crore, against Rs 1,189 crore in fiscal 2006.

The reason: the merger of its Manesar subsidiary which was making losses(the Swift was made here) into MUL and the rise in the prices of key raw materials like steel and aluminium.

Its earnings were reduced by Rs 58.5 crore, after buying the 30 percent stake of its Japanese parent company, Suzuki Motor Corporation during the quarter.

For the full year, Maruti's earnings were reduced by Rs 113 crore because of the MSAIL merger. Jagdish Khattar, managing director, MUL, said "The loss from the MSAIL was one of the key challenges for us as we had to incur huge costs on staff training, their employment and the machinery expenditure. With the facility going full stream to its annual capacity of 100,000 units, we expected to absorb the entire negative impact of MSAIL during this fiscal."

The company registered an total income growth of 22.2 per cent at Rs 15,252 crore (net of excise) during 2007 fiscal against Rs 12,481 for the 2006 fiscal year. The company's profit had risen almost 12 times in the past five years and had record profit in each of the past three years.

Similarly the operating margins also registered a slight rise at 17.7 per cent for the March ending fiscal against 17.1 per cent of the previous fiscal.

This is a straight fourth year of rise in margins for Maruti. With surge in profits MUL would invest Rs 9,000 crore by the year 2010 to make newer models and increase the capacity to tap the growing demand in India, where only seven in 1,000 people own an automobile.

It plans to spend Rs 2000 crore rupees as capital expenditure in the current fiscal year, compared with Rs 1316 crore spend in the last fiscal year. The company may launch three new models this year including the sedan SX4 and a local variant of its sports utility vehicle Grand Vitara.

"To increase our presence in the export market, we would be launching an all new car for the Europe market in the 2008-09 fiscal, with the sales target of 200,000 units. We have already increased our exports by 13 per cent this year and are concentrating in different emerging markets," Khattar added.

Maruti is focusing on Morocco, Egypt, Saudi Arabia, and Chile as emerging key markets for exports. The company 54 percent owned by Suzuki Motor Corporation, sold 20 percent more cars compared with a year earlier at a record 674,924 units in the 2007 fiscal.

Auto analysts advised a 'accumulate rating' on Maruti's stock. Huzifa Suratwala, research analyst with Emkay Share & Stock Brokers said: "Maruti has posted an impressive results for the fiscal year. The demand for cars on the rise as the economy is expanding and individual incomes are rising, we are optimistic that it would maintain its leadership position in the passenger car market.''

The MUL Board of Directors recommended a dividend of 90 per cent (against 70 per cent in the fiscal: 2005-06:) and the expected outflow is expected in tune of Rs 130 crore beside the burden of the newly imposed dividend tax in this year's budget.

MUL stock closed at Rs 794.40 on Tuesday closing with a gain of 3.52 per cent on the Monday closing of Rs 767.40.