Maruti Suzuki’s set income gains on India car demand

Maruti Suzuki India Ltd, maker of half the cars sold in the country, unexpectedly posted a 25 per cent increase in first-quarter net income on demand for its new hatchbacks and record exports.

Profit rose to 5.84 billion rupees ($120 million) in the quarter ended June from 4.66 billion rupees a year earlier, the New Delhi-based unit of Japan’s Suzuki Motor Corp. said in a statement today. That exceeded the 4.51 billion rupee median profit estimate in a Bloomberg survey of nine analysts.

Vehicle sales gained 18 per cent in the quarter as declining interest rates and two new cars Maruti introduced in the past year stoked demand, helping the automaker post its first gain in profit in six quarters. Competition is increasing for India’s largest automaker as the world’s cheapest car, Tata Motors Ltd.’s Nano, began sales earlier this month, and Honda Motor Co. and Fiat SpA expand operations in the country.

“New models always create some excitement and attract people into showrooms,” said Jatin Chawla, a Mumbai-based analyst at India Infoline Ltd. “Maruti has been able to convert those footfalls in the showrooms into sales.”

Maruti rose as much as 6.7 per cent to 1,295 rupees in Mumbai trading, the highest since the company listed in July 2003. The stock changed hands at 1,292.25 rupees at 2.44pm in the city. Suzuki owns 54 percent of Maruti.

European Incentives

The carmaker sold 226,729 Swift hatchbacks, SX4 sedans and other models in the quarter, including record exports of 29,314 units. With the introduction of the A-Star and Ritz in the past year, Maruti now has a line-up of seven small hatchbacks in a country where three of four cars sold are compacts.

Incentives given by European governments to scrap old vehicles helped boost exports, Maruti said in the statement. The company also supplies the A-star hatchback to Nissan Motor Co.

“Europe’s scrappage incentives have helped Maruti,” said India’s Infoline’s Chawla. “Their exports growth is likely to continue this fiscal year.”

India’s economy grew a better than expected 5.8 per cent in the quarter ended March, according to the statistics office. Growth may accelerate to as much as 7.75 per cent this year amid signs of a “bottoming out” in the US and harvests benefiting from monsoon rains, the finance ministry said this month.

The Reserve Bank of India in April reduced benchmark interest rates for the sixth time in as many months to a record low, enabling banks to lower consumer lending rates. Almost 80 percent of all cars are bought on credit, according to Maruti.

Suzuki’s Forecast

Growth in India for Suzuki contrasts with declining sales in Japan where economic recession and an ageing population are cutting demand for its minicars. The company in May forecast a second straight profit decline this fiscal year because of slumping sales and a stronger yen. India is the biggest market for Hamamatsu City, Japan-based Suzuki.

Maruti’s spending on steel, rubber and other raw materials, its biggest expenditure, rose 39 percent to 48.2 billion rupees, the statement said. Declining commodity prices helped Maruti improve its profit, the company said in the statement.

Benchmark hot-rolled steel averaged 26,000 rupees a metric ton in the quarter, compared with 40,000 rupees a year earlier, according to Niraj Shah, an analyst at Centrum Broking Pvt. in Mumbai.