Maruti skids in June, net profit down 20%

COUNTRY'Slargest passenger car maker Maruti Suzuki is heading for tougher times after posting a decline in net profit for the quarter ended June over the year ago period and the pressure on bottomline is expected to continue in the current fiscal due to increased local competition, declining exports and higher raw material costs.
    Maruti Suzuki's net profit shrunk 20% to 465.36 crore for the three months to end June, declining the first time it last five quarters. Maruti officially preferred to remain silent on the issue but senior executives said that they expect the current fiscal to be difficult.
    "These are tough times faced by the company as our export earning have shrinked due to fluctuations in Euro currency and shrinking share in the domestic market is impacting our profit margins," a senior Maruti executive said on condition of anonymity.Profits shrunk largely due to higher commodity prices that bloated its input costs bill almost 25% besides higher royalty payment to parent Suzuki Motor and drop in export income from Europe due to weakening of the Euro.
    Royalty payment to Japanese parent totalled 188.7 crore including 65.15 crore for the period December 16, 2009, to March 31, 2010. Its other income more than halved to 100.2 crore for the quarter that took out the cushion from the earnings performance. The total income from operations, increased 26.78% to 8,231.53 crore from 6,493 crore in the yearago period. Although car sales grew 23% to 242,887 units for the quarter, it was not enough and the company's market share fell below the 50% mark for the first time in its 26-year operations in India. During the quarter, Maruti's market share declined to 47.59% from over 55% in the local market.
    Analyst tracking the company echoed negative sentiments on its performance. Maruti is facing the real-test with falling market share as higher outgo on commodity purchases and royalty payments have impacted margin, Vaishali Jajoo auto sector analyst with brokerage firm Angel Broking said. "We expect Maruti to underperform in FY' 2011 as the company would face cost pressures from inputs and increase spending on marketing," she said. Maruti's decline in net profit in Q1 of this fiscal is in contrast to 105% jump in 2009-10 fiscal when it had posted a bottomline of 2,497.6 crore.
    Maruti has not launched any new model or car after Ecco that was introduced during the Auto Expo in January 2010 even as its market share is stagnating with other car makers gaining with their new products.