Maruti 4th quarter net up 24 pct

By Rina Chandran

MUMBAI (Reuters) - Top car maker Maruti Udyog Ltd. posted a better-than-expected 24 percent rise in quarterly net profit on Tuesday, but analysts and the company were guarded in their outlook for sales and profits.

New Delhi-based Maruti, 54.2 percent owned by Japan's Suzuki Motor Corp., said net profit in the fiscal fourth quarter to March 31 rose to 4.49 billion rupees ($109 million), compared with an average forecast of 4.23 billion in a Reuters poll of 11 analysts.

Revenue grew 35 percent to 44.13 billion rupees against a forecast 41.96 billion.

Maruti's fuel-efficient small cars have been the first choice of thousands of first-time buyers in India, where small cars make up more than two-thirds of the passenger vehicle market.

Passenger vehicle sales hit 1.4 million units last year and are forecast to nearly double by 2010, but volatile raw material prices, firmer interest rates and fierce competition is putting pressure on vehicle makers in the fast-growing market.

Maruti, which has nearly half the Indian passenger vehicle market, said full-year net profit rose 31 percent to 15.62 billion rupees.

But its operating margin in the quarter narrowed to 12.4 percent from 14.8 percent, with raw material costs climbing 27 percent on the year.

"Margins are a bit worrisome and the volume outlook is also a bit clouded because of the higher interest rates," said analyst Ashutosh Goel at Edelweiss Securities.

"The climate is increasingly challenging, and while Maruti has been very good at cost reduction so far, even that benefit is diminishing," said Goel, who has an "accumulate" rating on the stock.

Maruti shares ended up 3.5 percent at 794.40 rupees in a firm Mumbai market, helped by hopes for a revival in demand after the central bank left interest rates unchanged at a policy review on Tuesday.

Maruti shares, valued at $5.3 billion, fell about 12 percent in January through March, mirroring a decline on the auto index and trailing a 5.2 percent fall for the benchmark.

MARGIN CAUTION

Sales of Maruti vehicles including the best-selling Alto and Swift models rose 30 percent to 200,112 units in the quarter.

Maruti raised prices on some models marginally in February and again in March after the government imposed a 1 percent tax.

Maruti rolled out a diesel variant of Swift in February and will launch a new sedan in the April to June quarter. It will also make a new model for European markets from 2008/09 and 50,000 compact cars a year for Nissan.

But new launches have a negative impact in the short-term.

"While in the long term they are good for the company, they have some financial impact initially," Managing Director Jagdish Khattar told reporters in New Delhi.

Maruti will export about 200,000 vehicles from 2008/09, he said. Suzuki is spending a further $1.7 billion by 2010 to expand capacity in India, taking capacity to 1 million vehicles a year.

Maruti, which competes mainly with South Korea's Hyundai Motor Co. and Tata Motors Ltd., in February opened a new plant with a capacity of up to 300,000 units and a diesel engine and transmission plant with a similar capacity.

But its share is under threat from new entrants.

Mahindra & Mahindra Ltd. is making the no-frills Logan sedan with venture partner Renault, and has a separate alliance with Renault and Nissan Motor Co. for a $905 million project that will have the capacity to make 400,000 vehicles a year in seven years.

Fiat has a new variant of its Palio car, while General Motors Co. has just rolled out the mini Spark.

The Indian government will sell its remaining 10.27 percent stake in Maruti in the fiscal year to March 2008.

(Additional reporting by Palash Kumar in New Delhi)

Source : Reuters