Maruti Profit Misses Analyst Estimates After Discounts

Maruti Suzuki India Ltd., the nation’s biggest carmaker by volume, reported third-quarter profit that missed analyst estimates as higher discounts on some models eroded gains from a weak yen. Shares fell.

Net income at Suzuki Motor Corp.’s Indian unit rose 36 percent to 6.81 billion rupees ($108 million) in the three months ended December, the New Delhi-based company said in a statement today. That missed the 6.94 billion-rupee median of 39 analysts’ estimates compiled by Bloomberg.

Industrywide local sales of passenger vehicles fell 5.7 percent in the nine months ended December, set for the biggest annual decline in a decade. The demand slump has prompted automakers including Suzuki Motor’s local unit to offer discounts to win buyers. Maruti’s local deliveries were little changed in the quarter at 268,185 from a year earlier.

“Higher-than-expected discounts could possibly play a bit of a spoilsport,” Kaushal Maroo and Ronak Sarda, analysts at Emkay Global Financial Services Ltd., wrote in a note before the announcement. “While domestic mix is slightly better in favor of higher diesel and premium car sales, export realizations are likely to fall on lower Swift and Dzire exports.”

Discounts rose significantly in the quarter, Chief Financial Officer Ajay Seth said on an earnings conference call, without elaborating. Sales fell 3.1 percent to 106.2 billion rupees, lagging behind the 109.1 billion-rupee median of analysts’ estimates compiled by Bloomberg.

Shares of Maruti fell 8 percent, the most since July 2012, to 1,566 rupees at the close in Mumbai trading.

Gujarat Factory

Suzuki Motor said it will spend 50 billion yen ($485 million) on a wholly owned factory in Gujarat, in western India. The plant, to start production in 2017, will have an initial capacity of 100,000 cars a year and will supply all its output to Maruti, the Hamamatsu, Japan-based automaker said in a separate statement today.

Maruti’s funds will not be invested in Gujarat, Chairman R.C. Bhargava said at a press conference in New Delhi today. The company has 73 billion rupees of cash reserves, he said.

Suzuki Motor had 886.4 billion yen in cash and short-term investments as of Sept. 30, according to data compiled by Bloomberg.

The cars produced at the Gujarat factory will be priced such as to cover direct cost and profit to pay for the capital spending, Bhargava said on the conference call. Maruti will profit from the sale of the cars to dealers and will get a higher return on capital than if it had been the Indian automaker’s investment, he said.

Suzuki will make money through Maruti, from dividend and royalty payments, Bhargava said.

“Maruti will earn profits without putting up any cash of its own for the this plant,” said Bhargava. “It’s a unique deal and that’s why people have trouble believing it. Someone giving me free money, I can’t think of a better option.”

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