Maruti Net Falls on Jat Stir, Higher Ad Spend
Profit slips for the first time in two years in Q4 to .₹ 1,133.6 crore, a decline of 11.7%
New Delhi: Maruti Suzuki on Tuesday reported a drop in quarterly profit for the first time in two years, as higher spending on advertising, loss of production due to a civil unrest in Haryana where its factories are located and a change in accounting rules weighed.
Net profit at the nation’s largest car maker fell 11.7% for the fourth quarter ended March 31 to .₹ 1,133.6 crore. Analysts, on average, had expected .₹ 1,130 crore, according to Thomson Reuters. Net sales rose 12.5% to .₹ 14,929.5 crore. In a news release, the company said it suffered a production loss of more than 10,000 vehicles, because of the Jat agitation in February seeking reservation for the community. The company had to halt manufacturing for days, with protestors blocking roads.
Chief financial officer Ajay Seth said the change in accounting rules resulted in a drop in non-core income. Earnings of .₹ 200-300 crore from mutual funds investment, which were previously accounted for every quarter, will now be calculated cumulatively every three years.
Maruti Suzuki’s total vehicle sales in the past quarter rose 3.9% to 360,402 units. Operating profit margin at 15.4% bettered analyst estimates of 14.6-14.8%. Analysts had expected operating margins of the company to be under pressure, with the Japanese yen strengthening against the dollar.
Maruti Suzuki pays royalty to parent Suzuki Motor in yen for its earlier models.
“The net profit was slightly below expectations on account of lower other income and higher tax incidence,” said Mahantesh Sabarad, deputy vice-president at SBICAP. “The operating performance came in as a surprise. Even on the higher side, we had estimated 15.2%. The improvement in Ebitda margins over Q3 was on account of stock change effect.”
While quarterly profit fell, Maruti Suzuki reported its highest-ever annual profit of .₹ 4,571.4 crore, up 23.2% from the year before.
Shares of Maruti Suzuki closed 3.6% higher at .₹ 3,869.45 on the Bombay Stock Exchange, outpacing the benchmark Sensex that rose 1.3%. Given the strong demand for new launches, premium hatchback Baleno and compact sports utility vehicle Brezza, Maruti is targeting double-digit growth in the current fiscal year. It has planned for production of 1.57-1.58 million units in the year that began on April 1.
It is budgeting for a capital expenditure of .₹ 4,400 crore this fiscal year, compared with .₹ 2,500 crore last year, Chairman RC Bhargava said. “The resources will be utilised in doing R&D work and in setting up sales and marketing infrastructure.” While the company is estimating strong growth, Bhargava said the year is expected to be challenging on many counts, with foreign exchange movements looking less favourable and commodity prices rising. The automobile industry in India is also struggling after the government imposed an infrastructure cess of 1-4% on vehicles and efforts by authorities to discourage the use of diesel vehicles.
Maruti expects rural sales to go up this fiscal year, as rains are forecast to be better this monsoon after two years of drought.