The Hindu Business Line : Feeling the heat

The shares of Maruti Suzuki, one of the better picks in the auto sector, fell 3.25 per cent on April 24, when the company announced its fourth quarter results. The company’s top-line showed a small 7.5 per cent growth compared to the same period last year.

The fall in net profits was sharp, at 34 per cent. But, a large part of the fall can be attributed to the steep rise in depreciation charge due to a change in policy. The blame has also to be shared by the considerably higher expense on raw material and power, which hit operating margins significantly. In addition, Maruti also had to provide for a marked-to-market (MTM) loss of Rs 50 crore.

On a sequential basis, top-line growth was almost flat. This muted growth was no surprise as monthly sales volumes had moderated in the fourth quarter. After clocking double-digit growth in the eight months beginning April, the number of vehicles sold grew only by 4.2 per cent in January and 1.3 per cent in February.

March was the worst month for the company where for the first time, sales volumes fell 2.1 per cent. Sales in the compact segment (Alto, Wagon R, Estilo and Swift) during this month reduced by 11 per cent compared to March 2007. The next few quarters may be challenging as competition is already hotting up in the compact car segment, of which Maruti is the leader. Margins may also be under pressure, considering the rising costs of inputs like steel.

PARVATHA VARDHINI C.

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