Q2 Results: Maruti Suzuki’s Profit Beats Estimates On Higher Income, Lower Tax
Maruti Suzuki India’s profit beat estimates in the July to September quarter aided by higher other income and a lower tax rate.
Net profit fell 39.3 percent year-on-year to Rs 1,359 crore in the quarter ended September, according to the exchange filing. That’s higher than the Rs 1,025-crore estimated by analysts tracked by Bloomberg.
The bottom line was aided by higher other income that rose 75 percent to Rs 920 crore. Tax expenditure, too, fell 78 percent to Rs 213.4 crore as India’s largest carmaker switched to the lower corporate tax rate introduced by the government in September.
Earnings before interest, tax depreciation and amortisation fell 53.2 percent to Rs 1,606 crore. Its operating margin contracted to 9.5 percent from 15.3 percent a year ago—against a forecast of 9.3 percent.
That’s despite a 30 percent drop in the company’s sales volume—the biggest in at least six quarters. And that dragged revenue. Revenue fell 24.3 percent to Rs 16,985 crore—against Rs 16,500 crore expected.
RC Bhargava, managing director of Maruti Suzuki India, attributed the slowdown in sales to an increase in cost of buying cars. Nine states have increased road taxes, he said in a post-earnings press conference. “Initial deposit required by customers has almost doubled and a lot of people dropped out when it comes to buying cars.”
Sales in October this year will be comparable with last year because of an increase in promotions, Bhargava said. “But this does not mean the industry is out of the woods yet and a revival will depend on the performance over the next two-three months.”
The automobile sector is currently is facing its worst slowdown in over two decades as Indians cut consumption in a slowing economy. That has triggered job losses at both automakers and showrooms to cut costs while passenger vehicle sales dropped for the 11th straight month in September.
Maruti Suzuki cut its production for the eighth straight month in September and has even lowered prices of some models such as Baleno RS, Alto, Swift Diesel, Celerio, Ignis, etc., after the finance ministry announced a corporate tax rate cut.
The company attributed the better-than-expected margin to improved operational performance in terms of cost cuts, lower advertisement spends and a lower corporate tax rate. These factors helped partially offset the headwinds of lower capacity utilisation, higher sales promotion expense and higher depreciation expense, according to the carmaker’s investor presentation.
Shares of Maruti Suzuki fell as much as 1.5 percent after the company announced its quarterly results. That compares with a 0.72 percent fall in the NSE Nifty Auto Index.