Maruti net rises 15.8%, but misses estimates
Baleno, Brezza drive growth; margins to come under more pressure
Maruti Suzuki India Ltd’s fiscal fourth quarter profit rose 16%, boosted by higher sales of its pricier Baleno and Brezza models.
Net profit rose to ₹1,709 crore in the three months ended March, from ₹1,476 crore a year ago. That compares with the ₹1,771 crore quarterly profit estimate of 24 analysts surveyed by Bloomberg. Net sales rose 20.3% to ₹18,005.2 crore from the year-ago period.
Increase in sales of the company’s more expensive models such as Baleno and Brezza, full capacity utilisation and cost reduction contributed to higher profit, Maruti said.
Increase in raw material prices and adverse foreign exchange movements, however, offset some of the gains. Operating margin narrowed to 14.2% in the March quarter from 15.6% in the year-ago period. The Japanese yen has strengthened against the dollar in the past three months. A strong yen makes imports from Japan costlier.
Maruti cautioned that its margins would come under further pressure when it starts buying cars from parent Suzuki Motor Corp’s Gujarat factory. Under a contract manufacturing tie-up, which came into effect in the March quarter. During any expansion, fixed costs remain high until the company attains full capacity, but they start moderating as capacity utilization improves. Suzuki’s plant in Gujarat has solved its Indian subsidiary’s capacity woes. Maruti will buy vehicles from Suzuki Motor Gujarat at cost price.
“The Gujarat plant is addressing Maruti’s capacity constraints and the company has lined up new models over the next couple of years, which is likely to benefit the company going ahead” said Shrikant Akolkar, an analyst at Angel Broking Ltd.
Maruti sold a total of 414,439 units in the fourth quarter, a growth of 15% from a year ago. Of this, exports stood at 31,771 units.
Sales of passenger vehicles in India during the fiscal year ended March 31 crossed the 3 millionmark for the first time, growing at the fastest rate in six years, largely on the back of demand for sport utility vehicles, according to data released by industry lobby group Society of Indian Automobile Manufacturers (Siam) on Tuesday. Maruti controls 48% of the Indian market.
Maruti, which has tasted success under the leadership of its current chief executive and MD Kenichi Ayukawa, is sitting on a cash reserve of ₹23,000 crore. The company’s board has recommended an annual dividend of ₹75 per share for 2016-17, more than double the ₹35 per share paid in the previous year.
Chairman RC Bhargava told reporters at a press conference that the company has modified its dividend policy and the payouts will be in the range between 18% and 40% as against 18% and 30% in the past.
Royalty outgo to parent Suzuki Motor, which owns 56% in Maruti, increased to 5.8% in March quarter as against 5.7% in the year earlier.
Maruti shares on Thursday declined 0.56% to ₹6,371.15 on the BSE, while the Sensex shed 0.34% to 30,029.74 points.
The company plans to utilise its cash reserves in expanding its sales and service facilities. It has created a real estate vertical within the company that acquired 75 sites across the country during the year ended 31 March.
“We can scale that up and put in more money,” Bhargava said. “We will have to increase our sales and service network by two to three times if we aim to sell another 1.5 million units in less than 10 years.