Maruti Suzuki's profit up 27.1 percent in December
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.