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Maruti First-Quarter Profit Unexpectedly Falls 20% on Raw Material Costs
Maruti Suzuki India Ltd., the nation’s biggest carmaker, said profit fell for the first time in five quarters, missing estimates, as increased raw material costs eroded gains from higher vehicle sales.
Net income fell 20 percent to 4.65 billion rupees ($99 million), or 16.11 rupees a share, in the three months ended in June, from 5.84 billion rupees, or 20.2 rupees, a year earlier, the unit of Suzuki Motor Corp. said in an e-mailed statement today. That was lower than the 6.7 billion rupee average of 24 analyst estimates compiled by Bloomberg. Sales rose 27 percent to 80.5 billion rupees.
Maruti’s spending on steel and other raw materials increased 26 percent in the quarter as a reviving global economy boosted prices of commodities. Competition for New Delhi-based Maruti is rising as Volkswagen AG, Nissan Motor Co. and other automakers introduce new compacts in Asia’s third-largest passenger-car market.
“Raw material prices have been a severe problem for auto companies,” said Umesh Karne, a Mumbai-based analyst at BRICS Securities Ltd. who has an ‘underperform’ rating on Maruti’s shares. “Increased competition is preventing the company from raising vehicle prices to absorb this cost.”
The carmaker, 54.2 percent owned by Japan’s Suzuki, sold 283,324 cars, vans and sport-utility vehicles in the quarter in India and overseas, compared with 226,729 a year earlier. Exports climbed 38 percent.
Euro, Royalty
The weakening of the euro during the quarter hurt income from exports, Maruti said in the statement. The euro fell 5.8 percent against the Indian rupee during the quarter, according to data compiled by Bloomberg. Europe accounted for as much as 80 percent of the company’s export revenue, Chief Financial Officer Ajay Seth said in April.
Payment of additional royalty worth 1.9 billion rupees to Suzuki also affected earnings, the company said.
Maruti shares rose 0.3 percent to 1,358.2 rupees in Mumbai trading yesterday. They have dropped 13 percent so far this year.
The carmaker aims to spend 17 billion rupees to expand the capacity at its Manesar plant, outside New Delhi, to 550,000 vehicles in the next two years. Maruti’s factory at Gurgaon, a New Delhi suburb, can produce 700,000 vehicles per year.
Volkswagen, Toyota Motor Corp. and other automakers have unveiled at latest 10 new models this year in India, where vehicle sales may reach 3 million annually by 2015, according to a 2006 government forecast. Industrywide sales in the year ended March increased at the fastest pace in six years.
India’s $1.2 trillion economy, Asia’s largest after Japan and China, expanded 8.6 percent in the quarter ended in March from a year earlier. The central bank expects gross domestic product to grow 8 percent this year.
To contact the reporter on this story: Vipin V. Nair in Mumbai at vnair12@bloomberg.net
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