Suzuki Q1 falls 20 pct, India demand slowdown worrying

TOKYO Wed Aug 3, 2011 2:38pm IST

A worker checks a car on the inspection line in the Hungarian plant of Japanese car maker Suzuki in the town of Esztergom, 60 km (37 miles) west of Budapest, July 14, 2011.  REUTERS/Bernadett Szabo/Files

A worker checks a car on the inspection line in the Hungarian plant of Japanese car maker Suzuki in the town of Esztergom, 60 km (37 miles) west of Budapest, July 14, 2011.

Credit: Reuters/Bernadett Szabo/Files

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TOKYO (Reuters) - Suzuki Motor Corp posted a 20 percent drop in quarterly operating profit as the March 11 earthquake hampered production, and stuck to its annual guidance for a small profit rise driven by the Indian market.

Suzuki, like other Japanese automakers, is looking to make up for production lost due to the March disaster in the second half of the business year, with plans to increase output for the full year.

The bigger worry for the maker of Swift and Alto cars is a slowdown in demand in its largest and most profitable market, India, where competition is also intensifying with global giants such as Toyota Motor Corp and Ford Motor Co entering the small-car segment.

Last week, local unit Maruti Suzuki India Ltd beat estimates with an 18 percent rise in first-quarter net profit, but warned of a challenging environment for car demand as interest rates and fuel prices rise.

Suzuki's April-June operating profit was 25.57 billion yen ($331.5 million), nearly double the consensus estimate of 13.8 billion yen in a survey of seven analysts by Thomson Reuters I/B/E/S, as its motorcycle business returned to profit for the first time in 11 quarters.

First-quarter net profit rose 24 percent to 18.73 billion yen as it booked a one-off extraordinary profit of 8.6 billion yen, mainly from the sale of a unit of former partner General Motors to GM's Asia-Pacific unit.

The yen's sharp appreciation, including against the Indian rupee, is also a drag, prompting Suzuki to join the chorus of complaints from Japanese automakers.

"It's very sad that there is no one in Japan that is taking action against the yen's strength," Suzuki Executive Vice President Toshihiro Suzuki told a news conference.

He said if the yen continued to rise further, the automaker may have to consider the option of shifting production outside Japan, repeating a warning from his father and Suzuki CEO, Osamu Suzuki.

Suzuki kept its full-year operating profit forecast at 110 billion yen, up 2.9 percent from last year, and net forecast at 50 billion yen. A poll of 19 analysts by Thomson Reuters I/B/E/S put the annual operating profit at 105.7 billion yen.

VOLKSWAGEN TIES UP IN AIR

EVP Suzuki had little to say about a public tiff that has developed with top shareholder Volkswagen AG, which it recently accused of undermining its independence.

Suzuki last month lashed out at the German automaker for including a fine-print entry in its annual report that categorised Suzuki as an associate over which it could "significantly influence financial and operating policy decisions".

Volkswagen, in response, has denied that it was trying to send a coded message to assert its control, but

admitted that plans to cooperate had sputtered, forcing a review of their 18-month-old partnership.

EVP Suzuki said the company would wait for Volkswagen to get in touch and explain its stance and intention after the summer break, repeating the Japanese automaker's stance that being equal partners was the prerequisite for any cooperation.

Shares in Suzuki are down about 10 percent in the year to date, faring worse than a 6.5 percent fall in Tokyo's transport sector subindex .

Before the results were announced, Suzuki shares ended down 2 percent at 1,739 yen on a broad sell-off in Japanese stocks.

($1 = 77.145 Japanese Yen)

(Editing by Michael Watson and Vinu Pilakkott)

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