Maruti Suzuki Profit Beats Estimate on Record Car Sales

Maruti Suzuki India Ltd., India’s biggest carmaker, reported profit that beat analysts’ estimates as a revival in demand in Asia’s third-biggest automobile market led to record sales.

Fourth-quarter net income at Suzuki Motor Corp.’s Indian unit declined 3 percent to 6.4 billion rupees ($122 million) from 6.6 billion rupees a year earlier, the New Delhi-based company said in a statement today. That exceeded the 5.56 billion-rupee median of 43 analysts’ estimates compiled by Bloomberg.

Chief Executive Officer Shinzo Nakanishi is adding new models and expanding diesel engine capacity as demand shifts to cars that run on the fuel, which is cheaper than gasoline in India. The automaker, which introduced its Ertiga van this month, may earn higher margins from the vehicle as it shares a platform and components with Swift and Dzire models, according to Umesh Karne, an analyst at Brics Securities Ltd. in Mumbai.

“Record sales are propelling profit at Maruti as demand increases for higher margin products such as the Swift and also for more expensive diesel models,” said Karne. “We see a slow and steady increase in demand as interest rates come down and consumer sentiment improves.”

Sales rose 17 percent to 114.9 billion rupees, according to the statement. That compares with the 118.1 billion-rupee median of 43 analysts’ estimates compiled by Bloomberg. The automaker expects deliveries to rise by as much as 12 percent in the year started in April, Mayank Pareek, Maruti’s head of sales, told reporters in New Delhi today.

Special Trading

Maruti rose 1 percent to 1,397.45 rupees at the close of a special trading session in Mumbai today, before the earnings were released. The stock has increased 52 percent this year, compared with the benchmark Sensitive Index’s 11 percent gain.

The automaker, 54 percent owned by Suzuki Motor, sold 360,334 vehicles in the quarter, with sales reaching a record in March, Maruti said. Raw material costs increased 18 percent to 88.7 billion rupees, according to the statement.

Industrywide car sales rose to records in January, February and March, after sales had declined 2.3 percent in the nine months ended in December from a year earlier, according to the Society of Indian Automobile Manufacturers.

Maruti’s sales in the nine-month period ended Dec. 31 declined 17 percent because a labor dispute at its Manesar factory resulted in an output loss.

Rate Cut

The central bank cut its key interest rate this month for the first time since 2009, seeking to bolster an economy the government estimates expanded 6.9 percent in the 12 months through March, the least in three years.

“Interest rate softening is a positive for the consumer sentiment,” Ajay Seth, chief financial officer of Maruti, told reporters. “But the rise in fuel prices remains a concern.”

The end of government controls sent gasoline prices to a record, prompting more car buyers to opt for vehicles that run on diesel. India’s fuel pricing policy has widened the gap between diesel and gasoline prices to 60 percent from 28 percent in June 2010. India subsidizes diesel, which is used by freight companies and accounts for a higher weight in the inflation index.

Maruti’s sales of diesel vehicles jumped 37 percent in the fourth quarter, while demand for gasoline-powered cars declined by 14 percent, Seth said. The automaker aims to increase diesel engine capacity to 400,000 units annually this fiscal year from 250,000, Nakanishi said in a conference call after the earnings.

The company plans to spend 17 billion rupees to set up a new diesel-engine factory that will be ready by 2014. The plant, near New Delhi, will have a capacity to produce as many as 300,000 engines a year, Seth said.

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