Maruti Suzuki India Ltd. (532500.BY) Friday posted its fifth straight drop in quarterly net profit as higher raw material prices and a foreign currency loss outweighed an increase in car sales.
Net profit in the three months ended March 31 slid 18.5% to INR2.43 billion from INR2.98 billion a year earlier, the biggest overseas unit of Suzuki Motor Corp. (7269.TO) said.
A Dow Jones Newswires poll of 20 analysts expected, on average, net profit to rise to INR3.87 billion. Quarterly net sales climbed 32% to INR63.08 billion.
Maruti, which makes one in every two cars sold in India, gained from lower borrowing costs and higher demand for its Swift and A-Star small cars.
Prices of key raw materials such as steel and aluminum also began to decline earlier this year amid the global economic downturn, but their costs still remained high during the quarter, company executives said.
"The cumulative impact of the adverse forex exchange movement - both direct and via vendor imports - impacted our profit," Shinzo Nakanishi, Maruti's managing director and chief executive, told analysts in a conference call.
Maruti made a provision of INR1.21 billion in the fourth quarter for mark-to-market loss on dollar-rupee derivatives. The rupee fell 3.9% against the dollar in the quarter.
Maruti will buy more parts locally to offset any adverse impact of foreign currency fluctuations, Nakanishi said.
Ajay Seth, Maruti's chief financial officer, said the company has hedged one-third of its total foreign currency exposure as of March 31.
The company had a net earnings before interest, tax, depreciation and amortization margin of 12% in the fourth quarter, compared with 17% a year earlier, Seth said, adding, margins are expected to grow this year due to higher exports and lower metal prices.
Shares of Maruti fell on the unexpected drop in profit, but recovered after the company gave a better outlook for this year. The shares closed 0.3% up at INR802.25 on the Bombay Stock Exchange, compared with a 1.7% gain in the benchmark index.
"On an operating level, the results are as per my expectations after adjusting for the forex loss and the impact of higher raw material prices due to currency fluctuations," said Amit Kasat, an analyst at Mumbai-based Anand Rathi Financial Services Ltd.
Maruti spent INR47.38 billion to buy raw materials in the fourth quarter, 28% more than a year earlier.
"Material costs were still quite high as commodity price benefit comes with a lag effect," Nakanishi said. "The balance part of this benefit will only come starting from the first (April-June) quarter of 2009-10."
Maruti is introducing new models to keep its leadership in India's growing car market as competition is intensifying. Maruti began selling the A-Star in November and will introduce the Ritz, another small car, in May.
Seth said Maruti will spend INR18 billion this year to launch new models and on marketing activities.
Maruti sold a total of 236,638 vehicles in the fourth quarter, 17% more than the year earlier. Sales for the fiscal year ended March 31 rose 3.6% to 792,167 cars.
Looking ahead, Nakanishi said Nissan Motor Co. (NSANY) is likely to source about 30,000 A-Star cars from Maruti in the current year for sale in overseas markets. Nissan already sourced 2,000 units of the A-Star as part of a contract manufacturing pact, he said.
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