Arcadie blog

India Maruti's profit falls on rising costs

NEW DELHI (AFP) – India's biggest carmaker by sales, Maruti Suzuki, on Saturday reported an 18 percent slide in quarterly net profit, hit by fast-rising raw material costs and bigger payments to its Japanese parent.

Maruti, 54 percent owned by Japan's Suzuki Motor Corp, said net profit slumped to 5.65 billion rupees ($123 million dollars) in the three months to December from 6.8 billion rupees a year earlier.

The result from the New Delhi-based company, battling mounting competition from India's second-largest carmaker, South Korea's Hyundai, and other rivals, fell shy of analysts' forecasts of around six billion rupees.

The drop came despite a 27 percent jump in sales to 92.8 billion rupees, boosted by new models rolling off the assembly lines of Maruti, which sells one out of every two cars in India.

The firm sold a record 330,687 vehicles, up 28 percent from the same period a year earlier during the three months.

But profit for the fiscal third quarter was undermined by surging prices of steel, rubber and other raw materials, higher royalty payments to Maruti's parent and a firmer yen, Maruti said.

"The increase in commodity costs during the quarter also impacted margins," the company said in a statement.

Earlier this month, Maruti raised prices to counter costlier raw materials.

The company, which has been reluctant to raise prices too sharply because of intense competition, had said rising input costs had become "unbearable."

Maruti's expenses in buying steel, aluminium and other raw materials jumped 27 percent from the year-earlier period to 70 billion rupees.

Other expenses climbed 37 percent to 9.2 billion rupees that included 4.6 billion rupees in royalties to parent Suzuki. Suzuki has been able to siphon greater profits from its Indian unit after India's central bank eased curbs on royalty payments by Indian companies to foreign partners.

Royalties as a proportion of sales totalled more than five percent compared with nearly four percent a year ago. India's market has become increasingly vital to Suzuki with a big chunk of its earnings coming from Maruti.

The rise in the yen's value against the dollar piled extra pressure on Maruti by making imported parts costlier.

India is one of the few countries where car sales are fast increasing thanks to new affluence among India's burgeoning middle class, estimated at 300 million people.

With just one in 10 households in urban areas owning a car and one in 50 in rural areas, India remains a highly under-penetrated and an alluring market, drawing a flood of entrants from General Motors to Ford and Renault -- especially in the biggest-selling small car segment.

Maruti has been producing to maximum capacity to meet strong demand.

It now can turn out 1.2 million vehicles at its two plants in northern India -- one in Manesar and the other in Gurgaon -- and is building two new plants to raise annual output to at least 1.75 million units.