Maruti Says Increase in Diesel Car Sales to Cut Discounts

Maruti Suzuki India Ltd. (MSIL), the nation’s biggest carmaker by volume, expects an increase in sales of diesel cars and a new version of its Alto hatchback to cut discounts that surged to a record in the second quarter.

The carmaker aims to lower discounts it offers over the next two quarters from an average of 14,750 rupees ($273) a vehicle in the quarter ended Sept. 30, Chief Financial Officer Ajay Seth said at a briefing in New Delhi yesterday. The discount in the first quarter was 11,646 rupees, he said.

Industrywide sales of cars locally have declined, prompting the nation’s automakers’ group to cut its forecast twice and forcing companies including Suzuki Motor Corp. (7269)’s Indian unit to offer discounts to win buyers. Maruti, which yesterday reported profit that beat analyst estimates on lower taxes and some costs, is counting on sales to pick up in the second half, spurred by Alto and festival season demand.

“Discounts will be less going forward as the new Alto has got a good response and will become one of their best-selling models along with demand for diesel models,” said Mahantesh Sabarad, an analyst with Fortune Equity Brokers India Ltd. in Mumbai. “It does seem to be a slow growing year, especially post the festival season, and will be a challenging year for all carmakers.”

The Society of Indian Automobile Manufacturers cut its car sales growth forecast on Oct. 10 to as low as 1 percent. The annual forecast for growth in local car sales was reduced to as low as 9 percent in July, from an estimate of 10 percent-12 percent pace given in April.

Diesel Bookings

Maruti, based in New Delhi, has bookings for 125,000 vehicles, with diesel cars accounting for as much as 90 percent of them, Mayank Pareek, head of sales, said yesterday. Sales of diesel vehicles rose to 72,462 units in the second quarter from 50,920 a year earlier, he said. The carmaker has an annual capacity to make 400,000 diesel cars.

India increased diesel prices in September as part of measures to pare its subsidy bill and trim the budget deficit. Still, a price gap between gasoline and subsidized diesel has spurred demand for vehicles that run on the cheaper fuel.

“Discounts won’t vanish, but discounts on petrol cars will average out as diesel car sales increase,” said Seth.

Maruti’s net income fell 5.4 percent to 2.27 billion rupees in the three months ended Sept. 30, from 2.4 billion rupees a year earlier, it said in a statement. That beat the 1.97 billion-rupee median of 38 analysts’ estimates compiled by Bloomberg.

‘Mixed Outlook’

Sales rose to 80.7 billion rupees from a year earlier, Maruti said. The median of 39 analysts’ estimates compiled by Bloomberg was for revenue of 81.2 billion rupees.

“The outlook for Maruti remains mixed as models like the Ertiga and the new Alto are seeing good demand but other models, especially on the petrol side, aren’t doing as well,” said Basudeb Banerjee, an analyst at Quant Broking Pvt. in Mumbai.

Maruti started selling its new Alto hatchback from this month and the Ertiga van was introduced in April.

Shares of Maruti, 54 percent owned by Suzuki, rose 2.1 percent to 1,390.80 rupees at the close in Mumbai yesterday. They have climbed 51 percent this year, compared with a 19 percent gain in the benchmark Sensitive Index.

The carmaker resumed production at its Manesar factory on Aug. 21 after a monthlong shutdown.

A general manager was killed and dozens of executives injured on July 18 at Maruti’s plant in Manesar in northern Haryana state. The stoppage in July was the carmaker’s fourth in the past year at the factory.

The dispute began after a worker beat up a supervisor on the shop floor. The union then prevented the management from taking disciplinary action, blocking managers from leaving the factory after work, Maruti Suzuki said then.

To contact the reporters on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net; Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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