Maruti Suzuki posts net profit decline of 34 percent in Q4 in spite of record sales

The automaker said its net profit fell to Rs.297.6 crore ($74.4 million) in the fiscal fourth quarter ended March 31, 2008, from Rs.448.5 crore ($112.12 million) in the corresponding period a year earlier, even though net sales rose to Rs.4762.9 crore ($1.19 billion) from Rs.4413.4 crore ($1.10 billion), a YoY growth of 7.9 percent.

For the full year, net profit stood at Rs.1730.80 crore ($432.7 million), up 10.8 percent from Rs.1561.9 crore ($390.47 million) a year earlier and its sales rose to Rs.18,823.80 crore ($4.7 billion), a year-on-year (YoY) growth of 23.4 percent.

Additional provision of Rs.210 crore ($52.5 million) for depreciation for the fiscal year 2007-08 and adoption of shorter depreciation cycles for its equipment and tooling assets, has resulted in the decline in its net profit, it said.

The full depreciation for equipment and tooling assets will now be 8 years instead of 13 years previously. The full depreciation for dies will be 4 years instead of 5 years, earlier.

"The market is showing mixed signals: household incomes are higher, but consumer confidence is lower because of high interest rates and inflation, and there is more competition," S. Nakanishi, managing director, Maruti Suzuki India, said.

"The pressure on the cost side will continue, but we expect that sales growth will be buoyant," he said.

Spending on raw materials, the company's biggest expense, increased 19 percent to Rs.3690 crore ($922.5 million) from Rs.3100 crore ($775 million). To offset the same, Maruti plans to raise car prices to partly pass on higher raw material costs.

The company, 54.2 percent owned by Japan's Suzuki Motor Corp., also made a one-time payment of Rs.54.5 crore ($13.62 million) to dealers following an excise duty cut on small cars, and suffered a net loss of Rs.50.48 crore ($12.62 million) in the quarter after it wrote down the value of its investments in derivatives.

Indian companies are required to disclose losses from investments in derivatives at the end of the quarter, according to a new rule set by the Institute of Chartered Accountants of India (ICAI) last month.

The company's Board of Directors has recommended a dividend of 100 percent for 2007-08 as against 90 percent a year earlier.

During the fiscal year ended March 31, 2008, Maruti Suzuki India sold a record 764,842 vehicles, marking a growth of 13.3 percent over the previous year.

The company's sales included exports of 53,024 vehicles during the same period, the highest ever in the company's history. Exports grew by 34.9 percent during the year.

"The year 2007-08 was the best year in the history of Maruti," Nakanishi said.

Maruti Suzuki India continues to control over 51 percent of India's growing automobile market even though it is facing stiff competition from Tata Group's Tata Motors and South Korea's Hyundai Motor.

($1 million = Rs.4 crore)