April 24 (Bloomberg) -- Maruti Suzuki India Ltd., maker of half the cars sold in the country, unexpectedly reported a drop in fourth-quarter net income after currency-hedging losses masked gains from record automobile sales.
Profit in the three months ended March slumped 18 percent from a year earlier to 2.43 billion rupees ($49 million), the Indian unit of Japan's Suzuki Motor Corp. said in a statement today. That lagged behind the median profit estimate of 3.78 billion rupees in a Bloomberg survey of 11 analysts.
Maruti incurred a foreign-exchange loss of 1.21 billion rupees in the quarter on wrong-way currency bets as the rupee fell to a record low against the dollar. Still, the company may be able to boost profit margins this year as the global recession cuts commodity prices and Suzuki boosts export of fuel-efficient hatchbacks from India, said Chetan Vora, an analyst at Brics Securities Ltd. in Mumbai.
"If you exclude the forex losses, the company has done a good job during the quarter," Vora said. "Going forward, I expect Maruti to improve its exports and profit margins."
The New Delhi-based carmaker bought currency contracts that allowed it to convert export earnings at rates between 41 rupees and 42 rupees to a dollar, said Ajay Seth, chief general manager in charge of finance. Instead, the rupee averaged 49.7963 against the dollar in the quarter, tumbling to a low of 51.9850. The company didn't disclose any hedging cover for its imports.
Shares Gain
"During the year, commodity prices went up sharply and remained high for most part of the year," the company said in the statement. "Forex fluctuations were also adverse and impacted the bottom line significantly."
Maruti gained 0.6 percent to 803 rupees at close of stock trading in Mumbai, after having tumbled as much as 4.4 percent earlier. It has gained 54 percent this year and is the third- best performer in the 30-share Sensex Index.
The carmaker boosted exports 67 percent to 25,153 units in the quarter on demand for its A-Star small car in Europe, where it's sold as the Suzuki Alto. Exports accounted for 11 percent of Maruti's total sales in the quarter, compared with 7.4 percent a year earlier, according to the statement. The carmaker expects to sell 30,000 units to Nissan Motor Co. this year.
A decline in commodity prices and increased localization, which will cut costlier imports, will enable the automaker to boost profit margins "significantly," Seth said in a phone interview. The company isn't expecting any foreign exchange loss this fiscal year, Seth said.
Capital Expenditure
Spending on steel, rubber and other raw materials, its biggest expenditure, rose 28 percent to 47.4 billion rupees.
Maruti, which will pay a final dividend of 3.5 rupees a share, plans 18 billion rupees in capital expenditure in the year ending March 31, Seth told analysts in a conference call.
Maruti's sales of Swift hatchbacks and SX4 sedans gained 17 percent to a quarterly record of 236,638 units as banks lowered lending rates and the government cut taxes on vehicle purchases to spur demand. Growth in India for Suzuki contrasts with plunging demand in Europe and Japan, where it's cutting output due to falling sales.
Japan's auto sales, excluding minicars, fell 32 percent to the lowest level in 35 years in March as economic recession, rising unemployment and falling wages hurt demand. In Europe, sales have slumped for 11 consecutive months through March, while U.S. sales dropped 37 percent last month.
"People are still considering new vehicles" in India, said Shashank Khade, who helps manage $300 million of assets at Kotak Securities Ltd. in Mumbai. "Liquidity conditions have eased, credit has started flowing back, and financing is not an issue anymore. We aren't facing a hemorrhage the way the world is facing in terms of credit."
To contact the reporter on this story: Vipin V. Nair in Mumbai at Vnair12@bloomberg.net .
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