Maruthi vrooms again
It’s the 16th consecutive quarter of growth in profit from the maker of Maruthi 800, Esteem sedan and Swift. Yes, Maruti has done it again – Maruti Udyog posted a 35.2% increase in net profit at Rs 499.60 crore for the first quarter ended June 30, 2007 when compared with Rs 369.57 crore in Q1FY07. Maruti’s total income increased 27% to Rs 4,154.07 crore in Q1FY08 from Rs 3,268.77 crore in Q1FY07. Maruti’s operating margin, a key gauge of profitability, was 14.6 percent, unchanged from a year earlier.These figures are incredible because in a period of volatile raw material costs and higher interest rates that are slowing sales india’s largest car maker continues to meet the investore expectations.Maruthi also beats the 3.7 billion rupees median estimate in a Bloomberg survey of 16 analysts and a forecast for a net profit of 3.69 billion rupees and net sales of 37.59 billion in a Reuters poll of 10 analysts.Profit was also bolstered by revenue from businesses other than manufacturing. The company’s other income gained 56 percent to 22.3 crore rupees.
During the quarter April-June 2007, the company’s sales in the domestic market, was 160,604 units, a growth of 17.1 per cent over the corresponding period last year. Total sales, including exports, during the April-June 2007 period was 169,669 units, up 17.1 per cent over April-June 2006.
Shares of Maruti rose 3.9 percent to 841 rupees at the close of trading on the Bombay Stock Exchange. The stock rose as much as 6 percent after the earnings were detailed. Maruti shares had fallen 9.4 percent in the April-June quarter, trailing a 2.7 percent decline on the Auto sector index and a 12 percent gain for the Sensex.
Reasons for the rise in profit:
Interesting launches and innovative marketing schemes has yielded the Maruti, the desired gain when its peers are suffering a setback in sales because of increase in price of raw materials and higher interest rate.
* Maruti has launched two new models in this quarter, the SX4 sedan and Grand Vitara SUV to attract buyers and counter higher loan rates in India.
* Maruti’s high margin cars have sold well, cars like the Swift and the new SX4 worked well for the maruti. It’s also benefited as a result of its Yen imports from Japan though spending on raw materials increased 30 percent to 31 billion rupees. The strengthening of the Indian currency against the Japanese yen and the U.S. dollar helped Maruti cut the cost of imports. The rupee gained 12 percent against the yen and 6.8 percent against the dollar in the last quarter.
* Maruthi has tied up with the State Bank of India Ltd. and ICICI Bank Ltd – India’s two- largest lenders, to offer loans to customers in towns and villages, where credit wasn’t previously available, to boost vehicle sales.
For investors:
* `Car sales will continue to grow and Maruti will be one of its major beneficiaries,” Amar Ambani, an analyst at Indiainfoline Ltd., a Mumbai-based brokerage said to Bloomberg. “High interest rates are a temporary setback for automobile companies,” said A.K. Sridhar, chief executive officer of UTI Asset Management Co. in Mumbai. “Sales should pick up from the third quarter,” he added.
* Maruti has been trying to expand its export markets aggressively Maruti aims to export 55,000 units in the current fiscal, up nearly 45% over the 38,000 units shipped last fiscal and from 18,000 units two years ago.
* Maruti Suzuki which is aiming to produce 1 million units by 2010, plans to invest as much as $2 billion by 2012 to counter the competition from minicars of General Motors, Renault-Nissan, Tata Motors and hatchbacks from Volkswagen AG, Honda and Toyota.
* Maruti Suzuki is planning 12 model ranges on four platforms for India by 2010. The future launches will feature the next generation M and K series engine replacing the existing F and G series engine. Maruti might launch a diesel variant of its existing line up (zen,wagonR, Alto,omni,versa or SX4) in this year. Esteem may replaced in the form of three box swift that will get the Fiat’s Multijet engine and it will be launched by January 2008. New WagonR plus and an alto successor is also on its cards.
* No longer investores have to worry about the hefty discounts and its impact on Maruti’s margin, because of the Incredible result and the fact that car sales grew 17 per cent in the june quarter could mean that Maruti will now withdraw the discounts and incentives from its dealerships until the festive season next quarter.
Suzuki sheds Maruti -an image makeover:
Come September and India’s largest carmaker may cease to be Maruti Udyog Ltd. As globally Suzuki is seeking a larger image makeover- Suzuki no longer wants to be small car maker and it has recently positioned itself as a complete car maker with the success of its globally strategic models like Swift, SX4 and Grand Vitara. Hence in India – one of the Suzuki’s largest market, the company steps up its new image campaign with a proposed new name “Maruti Suzuki India” instead of Maruti Udyog ltd. This is also in line with its shareholding pattern Maruti Udyog Limited. Suzuki which owns 54 percent stake in the company decides to retain the name Maruti only because of the name “Maruti” has a strong branding in the passenger car segment and has just substituted Udyog with Suzuki and add India. Suzuki says the new name would help launch Maruti vehicles in overseas markets. The company will be launching a model for European exports in the next couple of years and is also developing capabilities to become Suzuki’s research and development hub for Asia outside Japan. However the new name is subject to approval by shareholders The new name will come into effect only after it is approved by shareholders at the Annual General Meeting, and thereafter by the Registrar of Companies. It it important to recall that the Indian government in May sold its residual 10.27 percent stake in Maruti to banks, insurance firms and mutual funds.