Surge from more sales and better margins, both here and abroad.
Maruti Suzuki, the country’s largest car manufacturer, posted a net profit of Rs 583.5 crore for the first quarter of the financial year 2009–10. This is a rise of 25.4 per cent against the Rs 465.9 crore earned for the same quarter last year.
Total sales for the period between April and June this year rose by 34 per cent, to Rs 6,340 crore. Given the gloomy outlook for the auto industry for this year, analysts say Maruti’s first quarter performance was extraordinary. “Both the top line and the bottom line surpassed our expectations,” says S Ramath, Analyst at IDFC SSKI Securities.
Operating profit for the quarter ending June increased by about 45 per cent, to Rs 641 crore against the Rs 442 crore earned last year. The Ebitda (earnings before interest, taxes, depreciation and amortisation) margin inched up from 12.1 per cent last year to 12.5 per cent for the quarter ending this June.
While sales for the overall passenger vehicle industry for the April–June period grew by 3.8 per cent, Maruti Suzuki’s grew by an impressive 9.61 per cent, selling 197,415 units. The company’s surge in sales revenue comes from both selling more units of vehicles and deriving better margins from new models like the A-Star and the Ritz in the domestic market.
| TOP DRIVE |
| Maruti Suzuki's unexpected 25% increase in Q1 net profitis because of |
| * New models |
| * New customer segments |
| * Rise in market share |
| * Easing raw material prices |
| * Foreign exchange movements |
Another reason is surging demand from European countries like Germany, which are offering incentives to customers to switch to more fuel-efficient compact cars.
Maruti’s exports for the first quarter of this financial year increased by 134.7 per cent to 29,314 units,with the A-Star model contributing 90 per cent to overseas sales. The company hopes to export 130,000 units of vehicles by March 2010.
Operating profit margins improved for the first quarter on five fronts. One, the lowering of commodity prices by about 240 basis points in the last quarter has improved margins. Two, better margin yield from the more expensive diesel models. Three, the localisation efforts initiated for its automobile components has resulted in cost reductions and reduced exposure to currency movements. Four, the favourable foreign exchange rate of around Rs 48 to the US dollar over the past three months, which contributed about 200 basis points to the OPM. Five, reduced expenses in sales promotion, advertising, freight and shipping also boosted profitability.
However, the average discount the company currently offers on its cars has increased from Rs 9,000 per vehicle to Rs 12,000.
In the coming quarters, the company hopes to maintain a growth of about five per cent on an annualised basis. The company says demand will come from many quarters. One, from its current and new fuel-efficient models that have found good acceptance in the domestic market. The newly launched Ritz has sold about 15,000 units. Two, from the rural market. Rural sales contributed about nine per cent to the company’s total sales last year and now stand at 12 per cent. Three, from higher consumer spending as a result of attractive vehicle loans.
Maruti has earmarked Rs 2,100 crore for capital expenditure this year. Its cash reserves are Rs 4,700 crore. The shares gained by 6.44 per cent, to close at Rs 1,295.55 on the Bombay Stock Exchange today.
