Maruti Suzuki sees higher import costs on weak rupee
Oct 28 2013 , Mumbai
Maruti Suzuki India Ltd, like all automakers in the country, has been battling a depreciating rupee, while the industry faces a second year of falling sales because of high inflation and meagre urban salary hikes in a slowing economy.
"The depreciation of the rupee made imports expensive but owing to inventories the impact will reflect with a lag in the second half of the year," Managing Director Kenichi Ayukawa told reporters. "We have to be cautious of this."
The Indian rupee weakened 5 percent versus the dollar and 5.7 percent against the yen in the September quarter. Maruti, controlled by Japan's Suzuki Motor Corp, is estimated to spend the equivalent of a quarter of its revenue on parts from Japan and royalties to its parent.
Maruti had previously said it expected domestic sales to grow between 0 and 5 percent in the fiscal year that ends in March. "Our target is still above last year ... But that could be a tough target, I know," Ayukawa said.
Still, rural incomes are likely to rise thanks to bumper harvests after strong monsoons, and could be spent on vehicles in the year-end festive season when Indians traditionally buy expensive goods. Maruti is well placed to gain because of a wide dealership network, analysts say.
"This year, the contribution of the rural market has increased to 31 percent for the first six months, and rural markets have grown by around 24 percent plus," said Mayank Pareek, chief operating officer of marketing and sales.
"Going forward, I think personally we've just touched the tip of the iceberg. There should be huge demand yet to be tapped."
Net profit in the July-September quarter was 6.7 billion rupees compared with 2.27 billion rupees a year earlier when a riot at its Manesar factory led to one death, over 100 injuries, a month-long shutdown and a $250 million production loss.
The mean estimate of 12 analysts according to Thomson Reuters I/B/E/S was 5.52 billion rupees.
Revenue rose 27 percent to 102.12 billion rupees.
Operating margin rose to 12.6 percent from 11.4 percent in the previous quarter, calculated on total operating income, helped by a positive foreign exchange impact, despite Maruti being forced to offer discounts to push sales.
Ayukawa also said he expected a small delay in starting Maruti's new Gujarat plant in western India, which is to be commissioned by fiscal 2016, but did not give a new timeframe.
Maruti is the first of the three biggest domestic carmakers to report second-quarter earnings. Analysts estimate profit to fall 2 percent at Mahindra and Mahindra, India's biggest utility vehicle manufacturer, and rise 22 percent at Tata Motors, India's largest automaker by revenue - rescued by strong sales at its luxury Jaguar Land Rover unit.
Maruti shares have risen 1.6 percent so far this year, compared with a 6 percent gain in the main index .BSESN.