The country's largest car manufacturer, Maruti Suzuki India, on Thurday reported a 3% year-on-year increase in its net profit at Rs 1,799 crore during the October-December quarter, which was less than Bloomberg consensus estimates of Rs 2,006 crore.
The country’s largest car manufacturer, Maruti Suzuki India, on Thurday reported a 3% year-on-year increase in its net profit at Rs 1,799 crore during the October-December quarter, which was less than Bloomberg consensus estimates of Rs 2,006 crore. The lower-than-expected profit was due to higher effective tax rates and lower non-operating income, because of a Rs 313-crore mark-to-market impact on the invested surplus, compared to the year-ago period, the company said. The Maruti stock ended 1.6% lower at Rs 9,277 on the BSE before the results were announced. Operationally, the company reported robust numbers, with net sales growing by 14% at `18,940 crore, which was on par with analysts’ expectations. This was on the back of a strong volume growth of 11.3% y-o-y in the quarter. Volumes in the compact segment, which constitutes almost half the company’s volumes and includes top sellers like the new Dzire and the Baleno, grew by 27%, while the utility vehicle segment grew by 28%.
Meanwhile, the board of the company also approved a revised method to calculate the royalty, which would result in a lower royalty payment for the Ignis (launched on January 13) and all models launched and to be launched after it. The company clarified that even the newer generation iterations of old models like the new Swift will attract lesser royalty. However, the new royalty calculation method will only be implemented after the approval by the Suzuki Motor board. Royalty presently paid by Maruti to its parent stands at 5.3% of sales value. Under the new royalty payment method, Maruti would pay royalty to parent Suzuki Motor in rupees instead of Japanese yen, thus shifting the risk of currency fluctuation on the parent firm. For instance, if the company pays 100 yen as royalty on per car today, once the new arrangement comes into force, it would pay Rs 100 per car. The Rs 100 per car outgo would remain even if the yen appreciates against the rupee, which is not the case today. Operating Ebitda (earnings before interest, taxes, depreciation and amortisation) margins for the auto major rose by 107 basis points in the third quarter y-o-y on account of increase in the sale of higher value models and cost-reduction efforts, according to the company. On a quarter-on-quarter basis, margins declined by 120 basis points owing to higher discounts and rising commodity prices. The Ebitda for the quarter grew by 22% to Rs 3,037 crore.
Ajay Seth, CFO, Maruti Suzuki, told analysts in a post-earnings conference call that the increase in input costs was offset by the company’s cost-reduction efforts. He also said that realisations may remain stable going ahead. However, the company said a strain may remain on the margins as input prices rise in the fourth quarter. Seth said, “Commodity prices are hardening. Due to a lag effect, there will be more impact on the fourth quarter. We will have to see how to deal with it going ahead.” Interestingly, the carmaker’s sales growth in the quarter was faster in rural areas than in urban, according to Seth. He said while rural growth for the company was at 19%, the overall growth was at 15% for the company, signalling a revival in rural demand. The company plans to launch the third generation of its popular hatchback, Swift, in February at the auto expo, with which it expects a continued strong performance from its compact segment lineup. Swift sales in December 2017 were 9,793 units, accounting for about 8% of the company’s volumes. This itself will spell a notable margin boost if royalty payments are significantly reduced. Maruti also aims to launch its first electric vehicle in 2020. In the same year, it plans to bring out its first lithium-ion battery from the new battery manufacturing facility that was set up in a joint venture with Toshiba and Denso.