TOKYO Suzuki Motor Corp (7269.T), Japan's No.4 automaker, posted a 31 percent rise in quarterly profit on Monday on brisk sales in Asia, and stuck to its conservative forecasts as competition intensifies in the key Indian market.
Suzuki has enjoyed robust earnings growth compared with most domestic rivals thanks to its limited exposure to the stronger yen and heavy weighting in India, where majority-held unit Maruti Suzuki India Ltd (MRTI.BO) sells every other car.
But falling margins in India due to rising raw materials prices and slowing growth in the country's car market have weighed on Suzuki's shares, which have been the worst performer among Japanese auto stocks in the past three months.
"The trend of rising sales and profits remains, but the pace of growth has slowed compared with the first and second quarters," Senior Operating Officer Takao Hirosawa told reporters, citing margin pressure from higher raw materials prices in India.
He added that the company kept its guidance unchanged simply because it only reviews its business plans every six months.
In the October-December third quarter, operating profit at the maker of the SX-4, Swift and other compact cars came to 23.64 billion yen ($287.7 million), up 31 percent from a year earlier and roughly in line with an average estimate of 24 billion yen in a survey of four analysts by Thomson Reuters I/B/E/S.
That brought its nine-month profit to 92.46 billion yen, just shy of its full-year forecast of 100 billion yen. A survey of 21 analysts put the profit at a much better 115.8 billion yen for the year to March 31, up 46 percent from last year.
Third-quarter net profit quadrupled to 12.2 billion yen from 3.0 billion yen last year.
Most other Japanese automakers are seen posting a drop in third-quarter profits, hit by a sharp drop in domestic sales after government subsidies to replace old cars ended.
RACE HEATS UP IN INDIA
Auto sales in India grew a record 31 percent in 2010, driven by a burgeoning middle class in Asia's third-largest economy, but analysts expect sales growth to slow to around 12 to 15 percent this year, reflecting a likely hike in interest rates and rising fuel and vehicle costs.
Suzuki is facing unprecedented pressure from global automakers such as Toyota Motor Corp (7203.T) and Nissan Motor Co (7201.T), which entered India's low-priced car segments last year with the Etios and Micra models.
Last month, Suzuki Chief Executive Osamu Suzuki singled out Toyota's made-for-India Etios sedan as a "wonderful car" that promised to raise the bar for Maruti Suzuki. Toyota, which benchmarked Maruti's top-selling models such as the Alto to develop the Etios, is aiming to nearly double its Indian sales this year, adding a hatchback version of the car in April.
At the same time, Maruti Suzuki is fighting back by moving into the higher end, where bigger brands do most of their business. Maruti last week launched the $36,000 Kizashi sedan to take on Toyota's Corolla, Volkswagen's (VOWG_p.DE) Jetta, General Motors' (GM.N) Chevrolet Optra and others.
Fujio Ando, a fund manager at Chibagin Asset Management, said new entrants would have a tough time challenging Suzuki's dominance in India given its quarter-century lead and deep knowledge of the local market.
"In the field of small cars, Suzuki has superior know-how that's hard to compete with," he said. "Its India-heavy business should yield good results for another 10 years given India's population growth and the rise in incomes."
Maruti Suzuki, in which Suzuki holds 54.2 percent, reported an 18 percent slide in third-quarter net profit last month as higher royalty payouts and rising input costs weighed on margins.
Shares in Suzuki have fallen 3 percent in the past three months while all other Japanese automakers gained, mainly on the bright outlook in the recovering U.S. market. Tokyo's transport sector subindex .ITEQP.T rose 21 percent in the same period.
Before the results were announced on Monday, shares in Suzuki, owned one-fifth by Volkswagen, ended up 0.3 percent at 1,987 yen, roughly in line with the transport sector.
(Additional reporting by Mariko Katsumura; Editing by Nathan Layne and Michael Watson)