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UPDATE 2-India's Maruti says worst over after weak Q3
January 23, 2012 / 11:11 AM / 6 years ago

UPDATE 2-India's Maruti says worst over after weak Q3

* Q3 profit falls 64 pct to 2.06 bln rupees

* High interest rates and fuel costs hit sales

* “Bottom of bad news”, Q4 to be better - chairman

* Shares rally

By Henry Foy

Jan 23 (Reuters) - Maruti Suzuki, India’s biggest carmaker, assured investors the worst was over after strikes and an industry-wide sales slowdown resulted in a worse-than-expected drop in quarterly profit, pushing up its stock by more than six percent.

Maruti, which was producing every other car sold in India this time last year, has seen its dominant market share cut as strikes last summer brought its factories to a standstill and an industry-wide slowdown hit its key small-car segment hardest.

Profit fell 64 percent for the third-quarter to Dec. 31 from a year earlier, reflecting a 28 percent slump in vehicle sales and a weaker rupee, which boosted the cost of importing parts.

“This is absolutely the bottom of the bad news,” Chairman R.C. Bhargava told Reuters after the results were released on Monday. “The fourth quarter will definitely be better.”

The shares of the company, which is 54.2 percent owned by Japan’s Suzuki Motor Corp, were up by as much as 6.2 percent after the results after being down about 3 percent just before the announcement.

“This is the bottom of their performance now. From here on things will only improve,” said Vineet Hetamasaria, auto analyst at PINC Research in Mumbai.

“The expected rate cut is only going to be positive for them, and the Fiat tie-up will certainly help them in the diesel segment,” Hetamasaria said, referring to expectations that the Reserve Bank of India will soon start cutting interest rates to boost the country’s slowing economy.

Italian car maker Fiat said last week it would supply 100,000 more diesel engines a year to Maruti for the next three years.

The Indian carmaker has traditionally focused on cars that run on petrol, which is over 50 percent more expensive than diesel due to government subsidies.

Last week, Maruti followed domestic rival Mahindra & Mahindra and South Korea’s Hyundai Motor with a price increases across its range by up to 3.4 percent to help offset rising input prices that have crimped margins.

SALES DOWN, COSTS UP

Maruti said net profit in the three months to end-December slipped to 2.06 billion rupees ($41 million), a fall of 63.6 percent from a year earlier.

Analysts had expected a net profit of 2.35 billion rupees, according to Thomson Reuters I/B/E/S.

Sales dropped 17.4 percent to 76.6 billion rupees, but this was better than the 73.44 billion rupees analysts had expected.

High interest rates and rising fuel costs have curbed once-soaring car sales in Asia’s third-largest economy, as first-time buyers typically reliant on loans balk at the high cost of buying and running a vehicle.

This trend has hit small-car sales especially hard.

The industry’s trade body said this month it expected sales to grow by between 0-2 percent in the year to end-March, compared with 30 percent in the year-earlier period.

The 20 percent fall in the value of the rupee between its July high and end-December also hurt profits and margins.

Maruti said strikes that shut its plants in Manesar, north India, for several weeks last summer had cost it more than $500 million and resulted in lost production of about 40,000 vehicles during the quarter.

Shares in Maruti, valued at about $6.4 billion by the market, closed up 5.2 percent at 1160.65 rupees after being down about 3 percent just before the results announcement. The overall market rose 0.08 percent.

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