Q1 Results: Maruti Suzuki’s Profit Misses Estimates

Maruti Suzuki India Ltd.’s profit rose the most in six quarters but still missed estimates as higher commodity prices impacted its margins.

The country’s largest automaker reported a net profit of Rs 1,975 crore in the April-June period, an increase of 27 percent from the year-ago period, according to its stock exchange filing. That compares with a Rs 2,270-crore consensus estimate of analysts surveyed by Bloomberg.

Revenue rose 28 percent year-on-year to Rs 22,459 crore. The analysts had forecast Rs 22,450 crore. The growth was driven by a 24.3 percent year-on-year jump in volumes in the first quarter at 4.9 lakh units.

The operational performance also missed estimates. Earnings before interest, tax, depreciation and amortisation rose 44 percent on a yearly basis to Rs 3,352 crore—the consensus estimate was Rs 3,435 crore. The company’s operating margin expanded to 14.9 percent from 13.3 percent—analysts had forecast 15.3 percent.

The margin was lower than expected despite cost cuts and lower advertisement expenses. That’s because of higher commodity prices, the carmaker said in its filing. Adverse foreign exchange and rising commodity prices could impact profitability in future as well, it said.

It was a bit disappointing given that aggressive margins were expected from the Vitara Brezza compact SUV and the Baleno compact, Ankit Merchant, research analyst at SMC Institutional Equity, told BloombergQuint in an interaction. There is no reason to worry through since the company delivered growth during the quarter, he said.

Conference Call Highlights:

• Sold 1 lakh units of the new Swift within 45 days.
• Cost reduction measures have aided margin performance.
• Steel prices have increased, while other commodity costs are stable.
• Management is yet to take a call on price hikes.
• Demand and retail sales continue to remain buoyant.
• Increase in minimum support price and normal monsoons to aid car demand.
• Company should be able to meet demand with the current capacity.
• Royalty expenses in the first quarter stood at 5.5 percent of total sales.
• Waiting period for the Baleno’s petrol variant is only two-four weeks.
• The Baleno’s diesel variants have no waiting period.
• Discounts have gone up by Rs 1,000 per unit sequentially.

Shares of Maruti Suzuki fell as much as 4 percent, the most in over five months, to Rs 9,455 apiece after the results were announced. The stock declined 0.6 percent between April and June compared to a 5.9 percent rise in the benchmark NSE Nifty 50 Index.