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Business News/ Companies / Maruti Suzuki Q3 net profit grows 18%
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Maruti Suzuki Q3 net profit grows 18%

Higher sales and cost-cutting efforts help take net profit to Rs802 crore in quarter ended 31 December

Shares of Maruti rose 2.12% to close at `3,685.20 on BSE on Tuesday. The benchmark Sensex rose 1% to close at 29,571.04. Photo: Pradeep Gaur/MintPremium
Shares of Maruti rose 2.12% to close at `3,685.20 on BSE on Tuesday. The benchmark Sensex rose 1% to close at 29,571.04. Photo: Pradeep Gaur/Mint

Mumbai: Maruti Suzuki India Ltd said third-quarter revenue and profit expanded on the back of higher car sales and cost-cutting efforts, but India’s largest car maker missed analysts’ profit estimates due to higher spending on advertisements and promotions to boost product demand.

Net profit grew 18% to 802 crore in the quarter ended 31 December from 681 crore in the year earlier.

The median of 35 analysts on Bloomberg had estimated the company’s net profit at 896.6 crore. Net sales rose 15.5% to 12,263.14 crore from 10,619.68 crore.

Shares of Maruti rose 2.12% to close at 3,685.20 on BSE on Tuesday. The benchmark Sensex rose 1% to close at 29,571.04.

In a statement, the company attributed the net profit growth to better volume, cost reduction initiatives and favourable foreign exchange fluctuations.

Dharmesh Shah, an analyst with Mumbai-based brokerage firm SBI Cap Securities Ltd, said Maruti’s performance met his expectations.

“Topline was in line with my expectation, as the company had to pay 70 crore as excise duty on discounts during the quarter," Shah said.

“However, we are disappointed by other income, which was below our estimate, as company shifted the benefits of fixed maturity plans to the next quarter."

Other income was 118 crore as against Shah’s expectation of 229 crore.

According to two analysts who attended Maruti’s earnings conference call, the company said it would seek shareholders’ nod on its Gujarat plant in the next six months.

Both analysts spoke on condition of anonymity.

In January 2014, Suzuki announced that it would invest 3,000 crore in a plant in Gujarat and sell the cars it produces there to Maruti Suzuki—a big shift from an earlier plan in which the latter would have built the plant itself.

The announcement raised concerns that Suzuki could sell the cars at a higher price to Maruti than it would have cost the latter to produce them itself.

Institutional shareholders such as Axis Mutual Fund, DSP BlackRock Mutual Fund, HDFC Mutual Fund, ICICI Prudential Mutual Fund, Reliance Mutual Fund, SBI Mutual Fund and UTI Mutual Fund opposed the plan. In March, Maruti succumbed to pressure from investors, independent directors and Securities and Exchange Board of India (Sebi), and agreed to seek minority shareholders’ approval for the contract manufacturing agreement.

Suzuki will get started on the work in Gujarat on 28 January at a ceremony which will also be attended by Suzuki Motor Corp. chairman Osamu Suzuki.

In the three months ended 31 December, the company had to spend heavily on promotions to drive up sales.

Car sales in India have been sluggish, as slower economic growth and high interest rates and fuel prices forced consumers to delay purchases.

During the quarter, Maruti spent 70 crore beyond its marketing budget to push sales of its newly launched Ciaz sedan, upgraded mini car Alto K10 and a refreshed Swift hatchback.

In the call, Maruti said it is cautious about demand in the near-term as the government’s decision to end a temporary relief in excise duty may hit sales.

In the December quarter, Maruti sold 323,911 cars, an increase of 12.4% over the year-ago period. Exports accounted for 28,709 cars.

Consumer sentiment improved after the April-May general election produced a clear mandate and was reinforced by the extension of the excise duty cut and promotional schemes across the auto sector.

Siam said car sales grew 5% during the first nine months of the financial year 2014-15 till December to 1.35 million units, while total automobile sales rose 9.55% to 14.9 million units. Overall passenger vehicle sales, which include cars, utility vehicles and vans, increased 3.67% to 1.89 million units.

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Published: 27 Jan 2015, 01:55 PM IST
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