Maruti Q1 net profit rises 4.4%, but lags estimate
Rise in sales, high income, costcutting moves boost profit growth
Maruti Suzuki India Ltd on Thursday said its net profit for the June quarter rose by a marginal 4.4% over the corresponding quarter last year due to a higher deferred tax provision even as sales, including exports, grew at a brisk pace over the yearago period.
Net profit at the company, the leader in India’s passenger vehicles market, increased to ₹1,556 crore from ₹1,490.9 crore, while total revenue from operations increased to ₹19,777.4 crore from ₹16,996 crore. The earnings lagged estimates. A Bloomberg poll of analysts had estimated a net profit ₹1,692.3 crore.
Growth in sales, including those of pricier models, and higher non-operating income from cost reduction efforts contributed to the increase in profits, Maruti said in a statement. However, the costs were impacted by higher raw material prices and sales promotion and marketing expenses. There was also a oneoff impact of compensation to dealers on account of switch to the Goods and Services Tax.
During the three months to June 30, the maker of the Brezza compact SUV and the Baleno hatchback sold a total of 3,94,571 vehicles (including exports) up 13.2% over the year-ago period. Passenger vehicles sales in India fell 11.21% in June, the sharpest since March 2013 as firms curtailed dispatches to dealers ahead of the GST roll-out on July 1. Automakers in India count dispatches to dealers as sales.
A combination of factors that included the impact on account of transition to GST and higher raw material expenses dragged down company’s Ebitda (earnings before interest tax depreciation and amortisation) margins to 13.3% against 14.8% a year ago. Maruti’s raw material costs to sales during the quarter rose 21% from the year-ago period.
Other auto firms including Bajaj Auto Ltd, Hero MotoCorp Ltd and Ashok Leyland Ltd which reported their earnings earlier this month were also stung by the high raw material costs during the quarter.
In a post earnings call with analysts, Ajay Seth, chief financial officer at Maruti Suzuki, said the company faced an impact of 80 basis points on its Ebitda margins due to GST. Of this, while 50bps (a one-time cost) was on account of the compensation to dealers, the remaining was due to discounts offered on models to clear the stock ahead of the implementation of the new tax regime.
The average discount on Maruti models during the quarter stood at ₹16,600, he said.
Nitesh Sharma, an analyst at Phillip Capital said he expects the company’s margins to rebound from the current levels with the one-time impact on account of GST being out of the way. Its also likely to be bumped up by the cost efficiency measures and a likely price hike, he said.
In November 2016, Suzuki Motor Corp said it will invest ₹2,600 crore through its unit Suzuki Motor Gujarat (SMG), to build its second assembly plant in Mehsana, Gujarat and an engine and transmission unit. The facility started production in February 2017. It entered into a contract manufacturing agreement with its local unit Maruti Suzuki India Ltd, under which it will produce and sell vehicles to the latter.
Seth said SMG produced 24,000 units of the Baleno in the June quarter and is expected to reach its optimal utilisation by the fourth quarter.
The second phase of expansion at the unit will commence by the beginning of 2018-19. Together with its plants in Gurgaon and Manesar and Gujarat, it can produce 1.65 million passenger vehicles this year.
The local arm of the Japanese car maker which has widened its lead with the rivals in the last three years, presently has a backlog of more than 100,000 units. This is on back of a waiting period of 16 weeks each for the Baleno and the newly launched Dzire, and 20 weeks for the Brezza.
Maruti has outlined an investment of ₹4,500 crore in the current year. This will be utilised for meet new products, research and development and sales and marketing expenses.
In a research note after the results, Shrikant Akolkar, analyst at Angel Broking wrote the earnings were below consensus estimates. “It was already anticipated due to the rise in the raw material costs as well as discounts offered due to the GST. The demand is expected to be strong going ahead and with the premium vehicles in demand, we continue to maintain a positive outlook on the stock,” he wrote.
Maruti’s shares closed on Thursday at ₹592.30 on the BSE, up 0.19% from the previous close.