Net sales for Q2 FY15 were up 17.5% to R11,996 crore, with unit volumes (including exports) in the period rising 17% to 3.21 lakh units on the back improving demand for petrol cars like the Alto, WagonR and the newly launched Celerio.
Maruti Suzuki chairman RC Bhargava, however, warned that the market is yet to show any major recovery, and demand in the second half is likely to be lower than the first. The profits have increased this quarter on higher sales. But there is no real improvement in the market and the only reason there is overall industry growth is because Maruti has seen a volume increase. Discounts still remain high, he said, while adding that average discounts in Q2 FY15 stood at R21,000, higher than R17,000 in the same period last year.
At the board meeting on Thursday, the directors of the company decided to recommend an increase in the foreign institutional investor (FII) limit to 40%, broadly the level of public shareholding in the stock. This is subject to approvals from both the RBI and shareholders. There have been a lot of requests that there should not be a cap on FII investments. This will help in trading in the capital markets, Bhargava said.
When Maruti Suzuki India was listed in 2003, the FII shareholding was limited to 24% as per the Foreign Exchange Management Regulations, 2000, and the consolidated foreign direct investment policy. This limit was reached about a year and a half ago and as a result, Maruti Suzuki went out of the MSCI index where the availability of room to buy shares is a precondition.
Many global funds benchmark with this index and their shareholding in a particular stock depends to some extent on the weightage of the stock in this index. This has a bearing on the stock price of the company also. Additionally, the FII limit is restricting the ability of both domestic and foreign investors to buy and sell shares of the company, a company statement said.
Additionally, the board has approved guidelines for dividend payment, under which the company would keep the dividend payout ratio within the range of 18% to 30%. The actual dividend for each year would be decided by the Board taking into account the availability of cash, the profit level that year and the requirements of capital investments. Last year the dividend was 15%, before that it was 10-11% and every year it has been increasing. Now with adequate cash reserves we felt that we needed to be more liberal with the dividend payouts, Bhargava said.
Asked if a date has been decided for minority shareholder voting on Japanese parent Suzuki Motor Corporations (SMC) contract manufacturing proposal for the Gujarat plant, Bhargava said that there is no urgency and a date will be announced later. The Gujarat plant will be commissioned in May-June, 2017, with Maruti making all investments before it is transferred on an arms length basis to SMC.