Maruti has a tough Q2, net profit drops 5.4 percent

October 31, 2012: India’s largest carmaker, which revealed the financial results for the second quarter ended September 30, 2012, has had a tough half-year in 2012-13. The results are clearly indicative of the challenges faced by the company: the month-long Manesar plant lockout due to labour trouble, the subsequent slow ramp-up to normalcy and lower production of diesel-engined vehicles like the Swift hatchback and Dzire saloon, despite the huge pent-up consumer demand for them. In fact, Maruti says it has a waiting list of nearly 125,000 for its diesel vehicles.

Further, the sharply dwindling demand for petrol vehicles has hit Maruti hard. In a bid to push petrol vehicle sales, it offered customers bigger discounts than before, which has impacted profitability. As against an average discount of Rs 11,650 in Q1 (April-June 2012), discounts rose to an average of Rs 14,150 per vehicle in Q2 (July-September 2012).

Overall, net profit for Q2 2012-13 fell by 5.41 percent to Rs 227.45 crore, compared to Rs 240 crore in Q2 2011-12 (July-September 2011). Worryingly for the company, Q2’s net profit is nearly half of Q1’s Rs 423.77 crore. Maruti says the bottomline has also been impacted by lower non-operating income during the quarter. While EBIDTA has grown 15.4 percent over the second quarter of 2011-12, higher depreciation (growth of 30.4 percent) reduced profits.

Net sales however were up by 8.5 percent in Q2 to Rs 807 crore, YoY. This growth, Maruti says, was due to growing demand for the new Ertiga MPV and enhanced export realisations. During the second quarter of this fiscal, the company sold 209,954 units in the domestic market, compared to 222,406 units in the same period in 2011. It also exported 20,422 units against 29,901 units in Q2 (2011-12).

The second half of 2012-13 should see Maruti fare better. With production at the Manesar plant moving up to almost 90 percent of its peak capacity, the Ertiga averaging sales of around 6,000 units every month (the bulk of them diesel), and the handsome response to the new Alto 800, which has already notched over 30,000 bookings within a fortnight of its launch, the carmaker should be able to achieve volume growth. What’s more, vehicle price increases and lower discounts after Diwali should help it improve its margins in the second half of 2012-13.