(Refiles to give the full name and designation of the executive
in the 7th paragraph)
* Q2 net profit at 2.40 bln rupees versus 4.06 bln estimates
* Labour unrest, interest rate hikes, exchange rate hit
* Board approves purchase of land for plant in Gujarat state
* Maruti stock down nearly 21 pct in 2011, more than broader
By Anurag Kotoky
NEW DELHI, Oct 29 Maruti Suzuki ,
India's top carmaker, reported a more than halving of its
quarterly net profit, wider than industry estimates, hit by
labour unrest at one of its key plants and rising interest rates
in Asia's third-largest economy.
Growing competition and a slowdown in the Indian economy is
expected to weigh on the near-term earnings of Maruti, though
the resolution of the labour unrest that started in June was a
positive, analysts said.
Maruti, which produced every second new passenger vehicle
sold in India last September, accounted for only 40 percent of
sales last month, according to data from the company and
industry body the Society of Indian Automobile Manufacturers.
"The economic slowdown does not augur well for the automobile
sector as such and demand is unlikely to rebound any time soon,"
said Jagannadham Thunuguntla, head of research at SMC Global
"Maruti will take quite some time to recover lost market
share because the rivals have become very aggressive and are
looking to tap the opportunity," he said.
Maruti, 54.2-percent owned by Japan's Suzuki Motor Corp
, said last week it had resolved the labour unrest at
its plant in north India that started in June and had crippled
production and undermined sales.
Maruti Chairman R.C. Bhargava
said the unrest led to a production loss of 83,000 cars, a
shortfall equivalent to around $500 million.
The labour unrest hit the company at a time when the sector
was battling a sharp decline in demand due to surging interest
rates and rising fuel and vehicle costs, with many first-time
buyers choosing motorcycles or scooters.
Car sales in India fell in July in their first monthly
decline in nearly three years. They continued to slide in August
and September after a 30 percent jump last business year.
India's auto industry body this month slashed its growth
forecast to 2-4 percent for this fiscal year that ends in March
2012, down from 12-14 percent estimated previously.
"The market has been declining," Bhargava told
reporters. "We were more hurt than anybody else because we have
a large position in small cars, where most of the buyers are
He hoped that the company would reach sales levels similar to
the year ago period in second half of this fiscal year.
India's central bank has raised interest rates 13 times since
early last year in an effort to battle stubbornly high
inflation, a move that has hurt credit-based purchases and
slowed economic growth.
Car sales in the country are driven by a burgeoning middle
class that mostly relies on bank loans for purchases, and about
three quarters of new cars are financed by banks and financial
Bhargava said Maruti was in advanced talks with Italian
automaker Fiat to source diesel engines and expected
the deal to be closed within two months.
LAND FOR NEW PLANT
Maruti's board on Saturday approved purchase of land by the
automaker in the western Gujarat state for "future expansion of
manufacturing facilities", a company statement said, without
Bhargava told Reuters last month the company would invest
nearly $1.3 billion to set up a new plant likely in Gujarat.
On Saturday, he said the proposed plant would
help boost exports due to its proximity to a port.
Maruti said net profit in its fiscal second quarter that
ended on Sept. 30 dropped to 2.40 billion rupees ($49 million)
from 5.98 billion rupees reported in the same period a year
Net sales in the quarter fell 15.7 percent to 75.4 billion
rupees, as total vehicle sales decling 19.6 percent to 252,307.
A Reuters poll of brokerages had expected Maruti to post a
net profit of 4.06 billion rupees on revenue of 75.40 billion
The company said its operating margin in the quarter was at 3
percent compared to 8.1 percent in the year ago period, hit by
lower sales volume and adverse foreign exchange rates.
Shares in Maruti, which has a market value of $6.6 billion,
have fallen nearly 21 percent this year, in line with a fall in
rival Tata Motors shares but more than a 13 percent
drop in the Mumbai market .
(Writing by Sumeet Chatterjee; Editing by Ron Askew)