Maruti Suzuki's net profit dropped 64 per cent in the third quarter ending December 31, 2011, on rupee depreciation, loss of production because of a strike and negative market sentiments. The profit was lowest since the second quarter of 2004.
Net sales dipped 17 per cent, with domestic car sales down 29 per cent (2.11 lakh units), and exports falling 11 per cent (27,725 units).
“The dip in profits was largely a result of the foreign exchange movement. Also, our economies of scale was lower - we couldn't reach the desired volumes,” Mr Ajay Seth, CFO, Maruti Suzuki said.
While higher fuel prices and interest rates led to sluggish demand, the company lost around 40,000 units in production because of a labour strike at its Manesar facility. With petrol models in low demand, the company was constrained by a short supply of diesel engines, leading to longer waiting period for diesel models such as Swift and Dzire.
Royalty and Imports
The rupee's depreciation and a rising yen led to a Rs 200-crore impact on margins in the quarter. Of this, Rs 19 crore was the exchange loss on royalty payments to Suzuki Motor, Japan - average royalty payment stood at 5.9 per cent of sales.
Forex-related losses also came from the higher cost of direct and indirect (for vendors) imports. In the fourth quarter, the impact of indirect imports will be severe - more than in the third quarter,” Mr Seth said during an investors' call.
Outlook
He added that the company is targeting double-digit EBITDA, and expects improvements in realisation and material expenses in the next fiscal. EBITDA margins in the third quarter dropped to 5.4 per cent from 6.6 per cent in the corresponding quarter last fiscal.
Last year, Maruti had reduced import content by around 2 per cent. Local sourcing gives a cost benefit of 15-20 per cent. With cash reserves of Rs 6,000 crore, Maruti expects to spend up to Rs 3,000 crore in the next fiscal on capital expenditure, new products and additional capacity.
On exports, the country's leading car maker said that it expects lower export numbers in 2011-12, at 1.25 lakh units, of which, around 40 per cent will be to Europe.
Maruti Suzuki shares on the BSE were up 5.77 per cent to Rs 1,162.55 on Monday.