Maruti Posts Smallest Profit Since 2004 on Strikes, Demand Slump

Maruti Posts Lowest Profit Since 2004 On Strikes
A Maruti Suzuki India Ltd. Swift car sits parked in Mumbai, India. Maruti, which sells almost half the cars in the country, fell 1.1 percent to 1,090.95 rupees as of 2:01 p.m. in Mumbai trading. Photographer: Adeel Halim/Bloomberg

Maruti Suzuki India Ltd., India’s biggest carmaker, posted an 64 percent drop in third-quarter profit after a strike by workers and lower demand for its models damped sales.

Net income at Suzuki Motor Corp.’s Indian unit fell to 2.06 billion rupees ($41 million) in the three months ended Dec. 31, from 5.65 billion rupees a year earlier, the New Delhi-based company said in a statement today. The profit is the smallest since the quarter ended September 2004 and less than the 2.17 billion-rupee median of 32 analyst estimates compiled by Bloomberg.

Demand for passenger cars in the world’s second-most populous country slowed after the central bank raised interest rates 13 times since the start of 2010 to rein in inflation, damping demand for cars in a country where about 80 percent of purchases are funded by loans. Maruti said Jan. 2 sales in the April to December period slid 17 percent to 773,361 units after a workers strike in October disrupted output.

“A few bad things combined together for Maruti in the quarter, including the labor trouble and the slowdown in the industry,” Basudeb Banerjee, an analyst with Quant Broking Pvt. in Mumbai, said before the earnings announcement. “Going forward, with the additional supply of diesel engines from Fiat, and the new Ertiga and DZire coming on sale, things may get better for Maruti in the next financial year.”

New Models

Maruti, which sells almost half the cars in the country, fell 1.1 percent to 1,090.95 rupees as of 2:01 p.m. in Mumbai trading. The shares have climbed 18 percent this year, compared with the 8.4 percent gain in the BSE India Sensitive Index.

Maruti will begin selling the Ertiga van from April, and a new version of its DZire sedan starting next month, Mayank Pareek, the company’s sales head said this month.

India’s automakers group cut its estimate for annual local passenger-car sales this month, projecting deliveries may not grow for the first time in nine years after higher borrowing and fuel costs sapped demand. The lifting of government curbs sent gasoline prices to a record, pushing demand toward diesel cars.

The Society of Indian Automobile Manufacturers, on Jan. 10, lowered the growth projection for the 12 months ending March 31 to 0 percent to 2 percent, the third time it cut its estimate this fiscal year. Annual sales fell in the period ended March 2003, according to data compiled by Bloomberg.

Labor Strike

In October, a labor strike over the formation of a union at Maruti’s factory in Manesar, near New Delhi, halted output of Swift compact cars. Workers also struck at parts maker Suzuki Powertrain India Ltd., causing production to be halted at Maruti’s factory in Gurgaon, also near the capital. The strike ended after an agreement was reached between the management, workers and the state government. The strike cost the company over 40,000 units of production, Maruti said.

The increase in gasoline prices has spurred demand for diesel powered cars. Maruti said in October that as many as 90 percent of the orders for the new Swift hatchback have been for the diesel variant causing waiting lists on the car. The company said on Jan. 18 it reached agreement with Fiat SpA’s Indian unit for the supply of 100,000 diesel engines a year for three years, according to an e-mailed statement.

Suzuki Motor owns 54 percent of Maruti.

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