Maruti Suzuki's profit up 27.1 per­cent in De­cem­ber

The Pak Banker - - COMPANIES/BOSS -

Maruti Suzuki In­dia Ltd on Thurs­day said De­cem­ber-quar­ter profit rose 27.1%, miss­ing an­a­lyst es­ti­mates as the cost of pro­mot­ing new mod­els eroded gains from an in­crease in ve­hi­cle sales.

The car­maker's net profit rose to Rs.1,019.3 crore in the quar­ter ended 31 De­cem­ber from Rs.802 crore a year ear­lier. A Bloomberg poll of 29 an­a­lysts had es­ti­mated Maruti's net profit at Rs.1,330 crore.

In Septem­ber quar­ter, Maruti Suzuki had recorded a net profit of Rs.1,225 crore. Net sales in De­cem­ber quar­ter grew 20.4% to Rs.14,767.7 crore. The In­dian unit of Ja­pan's Suzuki Mo­tor Corp. sold 374,182 ve­hi­cles in the De­cem­ber quar­ter-an in­crease of 13.8% from the year-ago pe­riod. Of this, 31,187 units were ex­ported, an in­crease of 8.6%.

Maruti's per­for­mance was boosted by higher de­mand for cars, costre­duc­tion mea­sures and a weaker yen that made im­ports of car parts cheaper, the com­pany said.

In an in­vestors call, Maruti Suzuki ex­ec­u­tives said mar­gins were im­pacted be­cause of a spate of launches that re­sulted in an in­crease in mar­ket­ing spend­ing. Ad­ver­tis­ing costs went up by Rs.70 crore last quar­ter, which saw the launch of pre­mium hatch­back Baleno and WagonR AGS, and a facelifted edi­tion of the Er­tiga, among oth­ers.

Mar­ket­ing spend­ing will con­tinue to in­crease as Maruti Suzuki will in­vest more to boost sales, the com­pany said. Other ex­penses in the quar­ter in­creased by 16.7% to Rs.2,079.6 crore be­cause of higher ad­ver­tis­ing and re­pair and main­te­nance ex­penses. Maruti Suzuki said em­ploy­ees costs, as a per­cent­age of net sales dur­ing the quar­ter, jumped 30 ba­sis points due to a one-time bonus pay­ment. Other in­come de­clined 69.2% to Rs.31.5 crore from Rs.102.2 crore in same pe­riod.

Av­er­age dis­counts dur­ing the quar­ter to­taled Rs.21,400, which was higher by around Rs.2,400 crore over the year-ago pe­riod.

"There was also an ex­cep­tion dur­ing the quar­ter. Con­ver­sion costs on in­ven­tory gets re­duced from ma­te­rial costs. We could con­vert only 4,000 units in stocks last quar­ter as we were clear­ing 2015 ve­hi­cles, as against a nor­mal of 20,000-25,000 units. This im­pacted prof­its mar­gins", Ajay Sheth, chief fi­nan­cial of­fi­cer, said in the in­vestors' call.

Shares of Maruti fell 0.37% to Rs.4,093.55 on the BSE, while the ex­change's bench­mark Sen­sex de­clined 0.09% to 24,470 points.

The earn­ings were an­nounced af­ter end of trad­ing on Thurs­day.

The main fo­cus on the an­a­lysts' call was on mar­gins, said Ma­hantesh Sabarad, the deputy head of re­search, SBICap Se­cu­ri­ties Ltd, a Mum­baibased bro­ker­age.

The com­pany's Ebitda (earn­ings be­fore in­ter­est, taxes, de­pre­ci­a­tion and amor­ti­za­tion) mar­gin de­clined 200 ba­sis points to 14.5%.

One ba­sis point is one-hun­dredth of a per­cent­age point. "Given the trend in the last few quar­ters peo­ple were fac­tor­ing Ebitda mar­gin of 16.5%. That was a dis­ap­point­ment. Net profit also dis­ap­pointed me. It was 30% lower than our es­ti­mates," said Sabarad. He added that many an­a­lysts are likely to down­grade the stock in the near-term pe­riod.

As of Thurs­day, 43 an­a­lysts on Bloomberg had a "Buy" rat­ing on the stock, nine rec­om­mended "Hold" and two were in favour of sell­ing the stock. "My cur­rent rat­ing is 'Buy'. But, the stock has also cor­rected. There could be a pos­si­bil­ity that we may down­grade the stock. It will take some­time be­fore it takes an up­ward tra­jec­tory," said Sabarad.

Maruti Suzuki, in De­cem­ber, won share­holder ap­proval to buy its cars from a Gu­jarat plant to be funded by par­ent Suzuki Mo­tor Corp., which will al­low the In­dian com­pany to in­vest its sur­plus cash in other parts of the busi­ness like re­search and de­vel­op­ment.

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