Maruti Q2 net skids 60%; Co to build new plant in Gujarat

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Maruti Q2 net skids 60%; Co to build new plant in Gujarat

India's largest passenger car maker Maruti Suzuki, hit by a labour unrest at its plant in Manesar and a slowdown in auto sales, saw its second quarter net profit slump 60% year-on-year to lower-than-expected Rs 240.44 crore.

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India's largest passenger car maker Maruti Suzuki , hit by a labour unrest at its plant in Manesar and a slowdown in auto sales, saw its second quarter net profit slump 60% year-on-year to lower-than-expected Rs 240.44 crore.

Net sales for the July-September quarter slipped 16% from a year ago to Rs 7,537.45 crore.

Analysts on average had expected Maruti to report a net profit of Rs 410 crore on revenue of Rs 7,688 crore, according to a CNBC-TV18 poll.

"During the quarter, the domestic auto industry remained sluggish on account of increase in fuel prices and hardening interest rates, leading to higher sales promotion expense. The company's bottomline was also impacted due to adverse foreign exchange rates," Maruti Suzuki said in a statement on Saturday.

It lost production of 28,539 units during the three-month period due to the employee strike at Manesar plant. Maruti Suzuki manufactures one of its most selling Swift hatchback among other vehicles at Manesar, and the labour unrest, in demand of recognition to a new union among other things, sent production schedule for a toss.

Overall in the second quarter, Maruti Suzuki sold 2,52,307 units, down 20% year-on-year. Domestic sales fell  20% to 2,22,406 units, and exports were down 16% at 29,901 units.

On Saturday, Maruti Suzuki said its board has granted approval to purchase land in Gujarat's Mehsana district for future expansion of manufacturing facilities. The purchase will be subject to final negotiations on price and all legal formalities being completed, it said.

The new plant will reduce Maruti's dependence on the Gurgaon-Manesar belt, and also bring it closer to ports, thus enabling speeder exports.

However, the overall sentiment in the auto industry remains dull since customers have postponed purchases as loans have become expensive and petrol prices have risen sharply.  Earlier this month, industry body SIAM (Society of Indian Auto Manufacturers) slashed its forecast for passenger car sales growth this fiscal to 2-4% from 10-12% earlier.

CLSA Asia Pacific Markets had on Friday noted that rivals General Motors and Ford seemed to be benefiting from the prolonged strike at Maruti Suzuki's Manesar plant.

"With the waiting list for the Swift stretching to six months or more, customers are moving to other diesel small cars like GM Beat and Ford Figo," it had said.

Maruti dealers were the least optimistic on sequential sales improvement, despite October seeing peak festive demand, it said. CLSA has a "underperform" rating on Maruti Suzuki.

Maruti Suzuki shares ended down 2% at Rs 1,126 on Friday. The stock has fallen near 7% over the last three months, even as the broader CNX Auto Index has gained 8.5%, underlining investors' concerns over Maruti's earnings in the near-term.

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Nachiket Kelkar
nachiket.kelkar@network18online.com