Maruti Suzuki India Ltd., the nation’s biggest carmaker, boosted second-quarter profit 5 percent as India’s economic growth propelled record auto sales.
Net income rose to 5.98 billion rupees ($134 million) in the three months ended Sept. 30 from 5.7 billion rupees a year earlier, the company said today in a statement. Profit was in line with the 5.91 billion rupee average of 32 analyst estimates compiled by Bloomberg. Sales gained 27 percent to 89.4 billion rupees.
The carmaker, a unit of Japan’s Suzuki Motor Corp., increased vehicle sales 27 percent to 313,654 units in the period as rising incomes spurred demand in the world’s second- most populous nation. Competitors including Ford Motor Co. and Volkswagen AG have added models in India and built new plants to challenge Maruti’s 50 percent market share.
“Demand in the Indian market remains strong,” Chairman R. C. Bhargava said in telephone interview after the results were announced. “We still have a capacity constraint and are unable to produce enough cars to meet demand.”
A strengthening yen and higher royalty payments to Suzuki Motor eroded profitability, Bhargava said. Maruti paid 4.72 billion rupees, or 5.3 percent of net sales, in royalty fees in the quarter, an increase of 2.21 billion rupees from a year ago, Chief Financial Officer Ajay Seth told reporters today in New Delhi.
Higher Costs
Maruti offset higher raw material prices by selling more cars, Bhargava said. Tata Steel Ltd., Steel Authority of India Ltd. and JSW Steel Ltd., the nation’s top producers, have raised prices at least thrice this financial year.
The company expects raw material costs to increase in the second half, Chief Executive Officer Shinzo Nakanishi said today in a conference call to investors. Maruti will buy more parts from local suppliers to maintain profit margins, he said.
The shares rose 1 percent to 1,551.60 rupees at the close of trading yesterday in Mumbai. The stock has declined 0.5 percent this year, compared with a 15 percent gain in the benchmark Sensitive Index of the Bombay Stock Exchange.
The company’s sales in September gained 30 percent to a record 108,006 vehicles. The automaker has posted 20 straight months of sales increases. Demand for cars in India has risen more than 30 percent this year and may double to 3 million vehicles annually by 2015, according to the Society of Indian Automobile Manufacturers.
Ford, Toyota
Ford said in August it would introduce eight models in India by 2015, following the debut of its first small car earlier this year. Toyota Motor Corp. will introduce the Etios hatchback in the country in December.
India, which earlier capped royalty payments by local companies to their overseas technology partners at 5 percent of domestic sales and 8 percent of exports, removed the limits from Dec. 16, according to the Reserve Bank of India website.
Maruti posted a 20 percent drop in net income in the three months ended in June, the first decline in five quarters, as it paid higher royalties to Suzuki. Exports in the last quarter fell 3.7 percent to 35,718 vehicles, on weak European automobile demand, Nakanishi said. Markets outside Europe now account for 60 percent of the company’s total exports, he said.
The company last month introduced a second version of the Alto hatchback, its best-selling model, after starting sales of the Eeco van and a revamp of the WagonR compact this year.
Maruti expects to complete constructing a factory near New Delhi with capacity to produce 250,000 cars annually by the second half of 2012, Seth said. It also plans to build another facility of similar capacity nearby to be completed by 2013.
The company will have a capacity to produce 1.75 million cars by 2013, Seth said. The four factories of Maruti, which is spending 17 billion rupees on the new plants to maintain its share of the expanding auto market in India, have a combined capacity of more than 1 million vehicles a year.
The automaker is now producing 110,000 vehicles a month, Nakanishi said, adding that he expects the demand momentum to continue for the rest of the year.
