Maruti’s Q1 profit in the slow lane BUMPY RIDE

Grows 4.4% to ~1,556.4 crore; first single-digit growth in four quarters; GST and rising input costs weigh

The country’s largest carmaker, Maruti Suzuki, reported a 4.4 per cent increase in profit to ~1,556 crore for the quarter ended June. This was after four quarters of double-digit growth in this measure.

It said a higher deferred tax provision, firm commodity prices, sales and marketing expenses, and compensation to dealers for transition to the new goods and services tax (GST) had impacted their margins. The impact of GST compensation for the input tax credit loss on inventory, as of June 30, was estimated at ~80-85 crore.

The profit growth had been 23 per cent in last year’s June quarter. This time's figure was lower than earlier analyst estimates of ~1,670-1,700 crore. Net sales expanded almost 17 per cent to ~17,132 crore. The company sold 394,571 vehicles, a rise of 13.2 per cent over the same period a year before. Of these, exports were 26,140 units. The average raw material cost per unit rose 2.2 per cent to ~266,068, compared to a year before, one of the factors that toned down the profit.

The company’s share price had hit a new high of ~7,679 at the BSE before the results were announced; they closed at ~7,592, up 0.2 per cent. Analysts remain bullish on the stock, up almost 30 per cent in six months, and continue to give ‘Buy’ calls.

Revenue growth was in doubledigits, backed by strong volumes and a better mix, offset by the drop in margins. “Higher raw material costs, coupled with one-time GST compensation to dealers, led to a mid-single digit profit growth. The waiting period on 35-40 per cent of its portfolio, coupled with fasttracking of capacity addition, would drive earnings growth. We maintain our ‘Buy’ rating on the stock,” said Bharat Gianani, research analyst at Sharekhan, part of BNP Paribas. The company said growth in volumes, a favourable product mix, higher non-operating income and cost reduction effort had contributed to profit.