After three quarters of instability, Maruti Suzuki's fourth quarter performance brings some cheer. Price increases and improved sales mix perked up average realisations in Q4, contributing to the 17 per cent growth (year-on-year) in net sales to Rs 11,486 crore.
Volume growth has also revived, reversing the trend of year-on-year fall in domestic sales volumes witnessed until December last year. Volumes have moved up by three per cent during this period, which though subdued, is a sign of improving times.
With production losses behind it and interest rates beginning their descent, it can be expected to pick up in the coming months.
Support to volumes
Two other factors will bolster volumes. One is the successful launch of the Ertiga, marking the entry of the company into the utility vehicles segment. Going by what happened last year, the UV segment tends to be a good diversifer to combat a slowdown.
While the sale of passenger cars rose only by two per cent during this period, utility vehicles volumes grew by a much higher 16.5 per cent. Maruti has already received bookings for 22,000 vehicles since its launch on April 12. The second is the clarity on taxation of diesel vehicles in the budget. Given the uncertainty, the company had held back its plans to set up diesel engine capacity although demand for such vehicles was on the rise.
This translated into long wait periods for its customers and, consequent loss of market share to competitors who came out with diesel cars in the interim. With the air cleared, the company is setting up a new diesel engine plant at Gurgaon. From 2.6 lakh vehicles this year, production of its diesel vehicles is expected to touch 4 lakh in 2012-13. Models such as the Swift, Dzire, Ritz, SX4 and Ertiga will benefit from this move.
Profitability to improve
Diesel vehicles contribute to about 25 per cent of the total vehicle sales of Maruti currently. A rise in the proportion of these vehicles going forward, will improve realisations and help margins, given their higher price points.
In the fourth quarter though, despite stabilisation in raw material costs and good top-line growth, operating margins disappointed at about 7.5 per cent vis-à-vis 10 per cent in the same quarter last year.
A forex impact of Rs 200 crore (due to appreciation of yen against the rupee) on compensation to vendors done with a lag and slightly higher discounts have been the major reasons for the same. This, along with higher interest costs, considering the capacity expansion initiatives, has weighed on the net profits. Net profits dipped to Rs 640 crore from Rs 660 crore in the fourth quarter of last year.