Maruti Suzuki says profits helped by sentiment, not growth

NEW DELHI Thu Jul 31, 2014 7:50pm IST

Keys hang from the door of a Maruti Suzuki Swift car at its stockyard on the outskirts of Ahmedabad April 26, 2013. REUTERS/Amit Dave/Files

Keys hang from the door of a Maruti Suzuki Swift car at its stockyard on the outskirts of Ahmedabad April 26, 2013.

Credit: Reuters/Amit Dave/Files

Stocks

   

NEW DELHI (Reuters) - India's biggest carmaker, Maruti Suzuki India Ltd, warned on Thursday that its rising sales were largely driven by improving sentiment, discounts and government tax breaks, rather than any underlying economic revival.

It was commenting after beating estimates in quarterly net profit.

For two consecutive years, high inflation and interest rates have resulted in declining car sales in India, but prospects of an economic recovery under Prime Minister Narendra Modi's new government helped a rise in sales in the June quarter, according to industry data.

Maruti, however, suggested the mood was not yet cemented in place.

"The vehicle sales increase we have seen in the first quarter is not broad-based across the industry and is driven more by sentiment," Chief Financial Officer Ajay Seth said.

"We are hoping the current sentiment-led recovery moves to an investment and job creation-led recovery soon.".

The company said profit for the April-June quarter was 7.62 billion rupees ($126.14 million), up from 6.32 billion rupees in the same period a year ago. Net sales rose about 11 percent to 110.74 billion rupees.

Analysts had expected the company to post a profit of 7.35 billion rupees, according to Thomson Reuters I/B/E/S.

Domestic carmakers including Maruti and Tata Motors Ltd are expected to raise their capital expenditure by 15.6 percent in the next 12 months, the most among peers in the Asia Pacific region, Thomson Reuters data showed.

India is working its way up to become the world's third-largest car market by 2018.

Maruti, controlled by Japan's Suzuki Motor Corp, said it plans to increase its capital expenditure by 14 percent to 40 billion rupees ($661 million) in the fiscal year that started April 1, compared with a year ago.

Sales of Maruti cars and utility vehicles rose 10.3 percent in the April-June quarter, led by strong performance of its small, entry-level cars as first time buyers were seen returning to the market lured by an extended tax concession by the government and high discounts offered by the carmaker.

Seth expects the upcoming festive season in India, which starts in October and is considered an auspicious time to buy homes and cars, to further boost sales.

Maruti expects to end this fiscal year with a double-digit growth in car sales compared with 3 percent growth last fiscal year, said Seth.

The company's wide dealership network, especially in rural areas where disposable incomes are rising, and a strong pipeline of new vehicles has prepared the carmaker for a recovery in demand, analysts say.

(Additional reporting by Shilpa Murthy in Bangalore; Editing by Miral Fahmy and Jeremy Gaunt)

Economic Pulse

REUTERS SHOWCASE

Vodafone Tax Dispute

Vodafone Tax Dispute

India advised against challenging Vodafone tax ruling - source  Full Article 

Banking Sector

Banking Sector

India's laggard state lenders face tough sell on capital raising plan  Full Article 

Trade Deal

Trade Deal

WTO postpones trade deal by a day after last-minute objection.  Full Article 

Falling Oil Prices

Falling Oil Prices

Saudis signal no push for oil cut as market to "stabilise itself"  Full Article 

Raising Stake

Raising Stake

Nippon Life to raise stake in Reliance Capital fund unit  Full Article 

Sterilisation Camps

Sterilisation Camps

Sterilisation targets remain in all but name, critics say  Full Article 

Share Buyback

Share Buyback

Samsung Electronics to buy back $2 billion in shares  Full Article 

Microsoft in China

Microsoft in China

Microsoft to pay China $140 million for 'tax evasion'   Full Article 

Flashback: 26/11

Flashback: 26/11

The three-day attack in November 2008 left 166 dead.  Slideshow 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage