 "The logo of Maruti Suzuki India Limited is seen on a glass door at a showroom in New Delhi")
The country's largest car maker, Maruti Suzuki, saw its first decline in quarterly profit in two years for the quarter ended March 31, 2016 impacted by production loss and high advertising spend. Nevertheless, it has been a year of records for the country’s largest car maker. Riding on highest ever sales, Maruti Suzuki has reported a record in both profit and revenue for the year ended March 2016.
The company, with 47 per cent of the domestic passenger vehicle market, expects FY17 to be a ‘difficult’ year but says it will strive to grow volumes by 10 per cent.
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Revenue for the quarter ended March exceeded an average of analysts' estimate of Rs 14,897 crore. Net sales for the quarter rose 12.5 per cent to Rs 14,929 crore. The profit was Rs 1,133 crore, down 11.7, owing to lower growth in volume. Religare said the quarter's operational numbers were above estimates. “Gross margins expanded by 250 basis points to 34 per cent, which led to Ebitda (operating earnings) margins at 15.4 per cent, versus the estimate of 14.8 per cent.”
Royalty payment for the quarter was 6.3 per cent, compared to 5.4 per cent in the corresponding period of FY15.
Maruti sold a total of 360,402 vehicles in the quarter, up 3.9 per cent. The production loss of about 10,000 units due to the reservation agitation in Haryana, where both its factories are located, increased advertising expenses and lower other income slightly impacted profit, the company said.
In FY16, net profit shot up 23 per cent on account of benign raw material prices and strong volume growth. Net profit for FY16 was Rs 4,571 crore. Net sales grew 15.9 per cent to Rs 56,350 crore. The market gave a thumbs-up to the results and the stock price on the BSE gained 3.6 per cent, to close the day at Rs 3,869.45.
The sharp growth in profit came in spite of high discounts (average of Rs 19,000 per vehicle) and higher royalty payment to Suzuki of Japan, the parent company. The company paid royalty at six per cent of total revenue in FY16 against 5.7 per cent in FY15, as the yen rose against the rupee.
The company sold a total of 1,429,248 vehicles in FY16, up 10.6 per cent, partly due to new launches like the Baleno and strong performance of older products like the Ciaz. Many of Maruti’s peers, such as Honda and Toyota, reported either low single-digit growth or a decline.
“In most ways, this year’s result is the best we have ever had. We are setting a challenge of repeating a double-digit growth in FY17, in spite of all difficulties. It is not going to be an easy year,” said R C Bhargava, chairman.
Listing the concerns, he said there was a reversing of soft commodity prices and pressure from environmental lobbies which want car sales to go down. “People do not look at logic and numbers,” he said.
The company is already operating at 100 per cent capacity but it aims to produce more. “We are trying to increase output at the Manesar plant by short-term measures. We have to produce 170,000 units over and above the (annual) capacity of 1.4 million,” added Bhargava. The company also hopes for a contribution of 10,000 units in the March quarter of FY17 from the third factory, in Gujarat, which it aims to make operational in January 2017.
Bhargava said he did not support the case for a cess on diesel vehicles, something the Supreme Court has indicated as possible. Bhargava said the central government had already imposed an infrastructure cess on all cars in its budget. “We expect the Supreme Court and government to take a balanced decision, in the overall interest of the country,” he said.
