Backed by strong volume growth of 15.5 per cent, Maruti’s net sales jumped 20.4 per cent to ₹14,768 crore in the three months ended December 2015 (over the December 2014 quarter). Despite a 70 per cent drop in other income and higher tax expenses, the company has recorded a healthy profit growth of 27 per cent, at ₹1,019 crore, in this period.
But the disappointment comes on the margin front. While the 14.4 per cent margin recorded in the December 2015 quarter is still higher than the 12.8 per cent achieved a year ago, it has deteriorated in comparison with the last three quarters.
Higher realisations from an improved product mix consisting of the Ciaz, SX4 S Cross and Baleno, benign input costs and favourable forex movements (yen-rupee) helped the company expand its operating margin from 15.8 per cent in the March 2015 quarter to 16.3 per cent and further to 16.7 per cent in the June 2015 and September 2015 quarters, respectively.
But higher advertisement and sales promotion expenses from the setting up of Nexa dealerships for its premium vehicles, higher employee costs and increased repairs and maintenance expenses have impacted the margin this quarter. The compact SUV (Vitara Breeza) expected to be launched shortly, will help improve realisations further in the coming quarters. But with the higher ad spends expected to continue, margins will be under pressure.
Besides, the appreciation of the yen against the rupee in recent times will also impact input costs for Maruti. The company still imports about 15 per cent of its input requirements from Japan.
However, price increases may help offset margin pressures to an extent. Earlier this month, Maruti announced a price hike of ₹1,000-4,000 across various models and ₹5,000-1,2000 for the Baleno.