India's top carmaker Maruti Suzuki warned rising input costs and a stronger yen could put pressure on its margins in the future as it reported a 93 percent jump in quarterly profit on Saturday.
Maruti, 54 percent owned by Japan's Suzuki Motor Corp, met forecasts with a 5.7 billion rupees ($122 million) net result in the quarter to September.
But it also warned of an up to 20 percent fall in demand from Europe once scrappage incentives end next year.
We have to be ready to accept some shrinkage in our European markets post-scrappage schemes, Managing Director Shinzo Nakanishi told reporters after announcing its second quarter results.
The company's exports, largely to European countries, got a leg-up from the scrappage incentives and other stimulus measures by governments there.
Exports have been led by the A-Star hatchback, which it launched last year. Since it started exports of the car in January this year, it has sold close to 78,000 units outside India.
It has a contract with Nissan Motor to export 54,000 A-Star's this year for sale to Europe.
Our focus is now to develop and expand our non-European markets, Nakanishi said. The company last quarter commenced exports of the A-Star to South America and South Africa.
In this financial year the company expects its total exports at 130,000 units of which 100,000 would be to Europe.
CAUTIOUS OPTIMISM ON DEMAND
Domestic sales were led by strong demand in India's festival season under a government stimulus package which brought down borrowing costs and made credit more easily available. Low oil prices and low inflation also propped up sentiment, especially in the semi-urban markets.
But the company was cautious about the outlook, citing factors such as a rise in aluminium and steel prices and a stronger yen against the rupee, which would push up import costs.
Our profit margin will see some pressure on these accounts. We are keeping caution along with optimism, Nakanishi said.
Watch out for factors like interest rates, liquidity, inflation and fuel prices, he added.
During the September quarter, which coincided with the festive season which runs from August to October, its domestic sales rose about 22 percent, driven by its models in the compact and mid-sized segments.
The company is investing about $215 million in expanding and upgrading its plant in Manesar in northern India by shifting some capacity from its ageing facility in nearby Gurgaon, which will also be expanded at a cost of 1.5 billion rupees.
Maruti sells around one in every two cars in India with models including the best-selling Alto, A-Star and Ritz hatchbacks and popular sedan Swift D'Zire.
Shares in Maruti valued at $9.3 billion, rose nearly 60 percent in the quarter, compared to an 18.2 percent rise in the main index .BSESN and 46.2 percent gain for the sector index .BSEAUTO.
(Writing by Janaki Krishnan; editing by Patrick Graham)