Maruti Suzuki net up 27% to Rs 1,019.3 crore, net sales up over 20%

NEW DELHI: Maruti Suzuki reported a more than 27% increase in third-quarter net profit, but fell short of market expectations as higher spending on ads and deeper discounts to push vehicle sales, and a fall in other income, weighed on its performance.

The nation’s largest car maker posted a net profit of Rs 1,019.3 crore for the quarter through December, compared with Rs 802.2 crore a year earlier.

“Higher volumes, material cost reduction initiatives and favourable foreign exchange contributed to profit during the quarter,” the Suzuki Motor unit said in a filing with stock exchanges.

Net sales rose more than 20% to Rs 14,767.7 crore from Rs 12,263.1 crore in the year-earlier quarter, while costs shot up over 17% to Rs 13,634 crore. Analysts polled by Bloomberg were on average expecting the company to post a net profit of Rs 1,333 crore on sales of Rs 14,848 crore.

Vehicle sales in the quarter increased 15.5% to 374,182 units. Of these, exports accounted for 31,187 units, an expansion of 8.6%. Profit margin narrowed to 14.4% in the past quarter from around 16.5% in the first two quarters of the fiscal year.

In an investors’ call, Maruti Suzuki said its margin was impacted because of a spate of launches, which resulted in an increase in marketing spending. Advertising costs went up by Rs 70 crore last quarter, which saw the launch of premium the hatchback Baleno as well as the WagonR AGS and Ertiga facelift, among others. Marketing spending will increase as Maruti said it will continue investment to boost sales.

Other expenses in the quarter increased nearly 17% to Rs 2,079.6 crore due to higher advertisement and repair and maintenance expenses. Employee cost jumped 34.5% to Rs 504.5 crore and depreciation cost climbed 15% to Rs 722.1 crore, while other income declined 69% to Rs 31.5 crore. Average discount per vehicle was Rs 21,400, which was about Rs 2,400 higher over a year earlier.

“There was also an exception during the quarter. Conversion costs on inventory gets reduced from material costs. We could convert only 4,000 units in stocks last quarter as we were clearing 2015 vehicles, as against a normal of 20,000-25,000 units. This impacted profits margins,” said Chief Financial Officer Ajay Sheth. Ahead of the results announcement, shares of Maruti ended 0.4% lower at Rs 4,093.55 on the Bombay Stock Exchange.