Maruti promises clarity on cash plans

By Aditi Shah

NEW DELHI (Reuters) - Car maker Maruti Suzuki has promised investors more clarity on its investment plans after March, a move that goes some way to appeasing shareholders that have fretted over the low returns it earns from a growing cash pile.

Maruti, which reported a lower-than-expected profit earlier on Tuesday in part because of lower returns from its investments, is sitting on $1.3 billion in cash, net of debt, which is invested mainly in debt mutual funds earning the company between 8 and 9 percent.

Some of the carmaker's top investors have been pressing for a more efficient and transparent use of capital -- or a return of the cash to shareholders via dividends or a share buyback.

 

"We are working out our budget for next year now, for which we will seek board approval in March. Then we will be in a better position to tell you about our capital expenditure plans," said Ajay Seth, Maruti's chief financial officer.

The company, owned by Suzuki Motor Corp <7269.T>, told Reuters it would invest the surplus cash in new product launches, including a sport utility vehicle, and in buying land to grow its dealership network, but gave few details.

Plans to invest in real estate have raised concerns among some investors, who fear that will involve committing large sums of cash to an asset which is not core to the firm's strategy.

"(It) is a problem to have very much cash and not a transparent strategy how to deploy it," Walter Rossini, a Milan-based portfolio manager for Gestielle India, which manages Indian stocks including Maruti, said ahead of Maruti's earnings.

"A hike on dividend payout would be welcome, more as a sign of future (positive development) than as a short-term reward for minority shareholders," he added. Maruti said in October it would increase the dividend payout ratio to 18-30 percent this year from about 10-15 percent previously.

Earlier on Tuesday, Maruti posted a smaller-than-expected rise in third-quarter profit, hit by one-off items including a jump in advertising costs, a higher tax rate and lower income from investments.

Maruti, which sells nearly one in two cars in India, reported a net profit of 8.02 billion rupees ($130.53 million), up 18 percent. Analysts on average expected a profit of 9.06 billion rupees, according to Thomson Reuters I/B/E/S.

Net sales rose 15.5 percent to 122.63 billion rupees, outpacing 12.4 growth in the number of cars sold by Maruti.

($1 = 61.4400 rupees)

(Additional reporting by Patturaja Murugaboopathy and Tripti Kalro in Bengaluru; Editing by Muralikumar Anantharaman, Clara Ferreira-Marques and Mark Potter)