Rivals make Maruti net skid in First Quarter

Despite a higher sales turnover, market leader Maruti Suzuki India Ltd (MSIL) posted a decline in net profit for the first quarter as fierce competition in the market prevented the company from raising the prices of its products to make up for the sharp increase in input costs.

The company posted a net profit of Rs. 465.4 crore, during the quarter, which was 20.2 per cent lower than the corresponding figure of Rs. 583.5 crore for the same period of the last fiscal.

The company’s net sales during the first quarter (April- June) touched Rs. 8,050.7 crore, representing a 27 per cent growth over the same period of the previous year. The increased royalty payment to the parent firm on account of the new K- series engine that powers Maruti’s new models also dented the bottom line.

MSIL’s domestic sales volume grew by 23 per cent to 242,887 units. However, the increased sales also came on the back of discounts on even some of its new models, such as the A- Star and Ritz, as rivals launched new models. The Ford Figo, GM’s Beat and Volkswagen Polo cruised into the market to step up competition. Arch rival Hyundai kept up the pressure with its i10 and i20 models.

The firm’s exports touched 40,437 units, a 38 per cent growth over the year- ago period. “ The drop in net profit is due to higher commodity prices, increase in royalty and lower ‘other income’. In addition, income from exports to Europe fell due to weakening of the Euro,” the MSIL said.

“Rising inputs cost are squeezing profitability and all car makers in this segment are feeling the pinch. But the competition is getting stiff and so increasing the price is not going to be very intelligent option,” a company official said.

And the competition is going to be stiffer in the future as Toyota plans to launch the Etios and Tata Motors is developing a car priced above Nano but below Indica.