Quarterly profit missed expectations as higher advertising spending hurt margins

NEW DELHI (NewsRise) - Maruti Suzuki India, the largest automaker nation, reported a profit of 27% in third-quarter profit, but missed market expectations, margins hit by higher spending on advertising and promotions during the festive season which runs from October to the end of the year.

Net income rose to 10.2 billion rupees ($ 150 million) in the October to December quarter, from 8 billion rupees a year earlier, the Indian unit of Japan's Suzuki Motor said in a statement. Analysts had expected a profit of almost 14 billion rupees.

Net sales rose 20% to 147.7 billion rupees, as new models like Baleno and S-Cross helped boost demand in the key festive season. The company sold 374 182 vehicles in the quarter, up 16% from last year. Of this, exports grew nearly 9% to 31,187, while domestic sales rose 16% to 342 995 units.

Higher promotion and advertising expenses, however, offset some of the benefits of lower material costs and favorable foreign exchange rates, Maruti said. The company also recorded higher repair and maintenance costs in the third quarter.

Cars, such as Maruti Suzuki and Mahindra & Mahindra, has enhanced the launch of new and offer discounts to spur sales during the festive period when many Indians usually buy high-value items such as cars. Passenger car sales growth has gained momentum during the fourteenth straight month, as rising wealth in the world's second most populous country spurs demand for private vehicles.

Going forward, the launch of new vehicles and fuel prices will continue to increase demand benign, the company said. However, there remains uncertainty of exchange rates and commodity prices, as well as the basis of higher sales volumes in the fourth quarter compared with last year.

The company also has faced sluggish demand for the once popular small hatchback, but compact vehicles such as the Swift and the recently launched Baleno has been faring well. Maruti has also been looking to take Mahindra & Mahindra, the largest sport utility vehicle maker nation, with a new SUV models like the S-Cross.

Maruti shares closed 0.4% lower at 4,093.05 rupees in Mumbai trading on Thursday, while the S & P BSE Sensex edged 0.09% lower.

India has intensified efforts to reduce pollution in recent months, including prohibiting the sale of large diesel vehicles and remove old trucks from the roads in the capital New Delhi. Last month the nation's Supreme Court ruling prohibiting the registration of sport utility vehicles and private cars with engine capacity of 2000 CC and above in New Delhi until the end of March.

Delhi, India's largest private vehicles with a market share of 7% of total sales, seeks to improve air quality, such as a thick blanket of smog big part of the city as dangerous mix of vehicle emissions, construction dirt and straw burning plants on farms around the capital.

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