The country’s largest car manufacturer Maruti Suzuki India came out largely unscathed from the damaging effects of demonetisation during the October-December quarter on the back of high demand of its higher-segment models. Though demand for mini segment vehicles did take a hit, the company was able to achieve stable quarterly earnings by a combination of higher other income as well as operational and revenue growth. During the quarter, Maruti’s year-on-year net profit increased 47.5% to R1,745 crore, narrowly missing analyst estimates. Net sales rose 12.4% to R16,624 crore while total income from operations was up 13% at R19,173 crore. Other income rose 144% to R592 crore.
The quarter saw Maruti selling 3.87 lakh vehicles, which was 3.5% higher over the same period last year. Herein comes the negative impact of demonetisation on sales of mini segment cars as overall volumes were much higher during the preceding quarter when it had grown by 18% on a yearly basis.
“Increase in share of higher segment models, lower sales promotion and marketing expenses, cost reduction efforts and higher non-operating income contributed to increase in profits. This was partially offset by increase in commodity prices and adverse foreign exchange movement during the quarter,” the company said in a statement.
For the last year or so the bulk of Maruti’s sales have been moving from the mini segment that comprises cars like Alto and WagonR to vehicles like the Baleno and Brezza, which is yielding it higher realisations. During the quarter, realisations increased 2.1% to Rs 4.35 lakh per unit. Going forward, the company said that it has a strong product portfolio and it expects soft interest rates, which should fuel demand. However, the outlook for January sales is a bit uncertain as the Budget is on February 1, which leads to some postponement of demand.
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Operating profit (Ebitda) during the quarter was up 16% at Rs 2,489 crore and margins expanded by 50 basis points to 15%, but contracted by 230 basis points sequentially due to higher discounts and raw material cost.
On the effects of demonetisation, Ajay Seth, chief financial officer, said that though bookings were down in November, it picked up in December.
In terms of expenses, Maruti’s input cost increased by 26.84% year-on-year to Rs 10,926.6 crore, while employee cost rose 22.86% to Rs 616.9 crore.
Maruti is currently working under production constraints which has led it to curtail production of popular products like Swift and Dzire to cater to the higher demand of the Baleno and Brezza.
The company’s Gujarat plant will start operations during January-March and in the next six months its production capacity is expected to increase to 250,000 units in a year. This will take Maruti’s overall production capacity to around 1.8 million units.