NEW DELHI, Jan 23 (Reuters) - Rising prices of raw materials like steel and lower sales of vehicles to the armed forces hurt truck maker Ashok Leyland's operating profit margin in the third fiscal quarter to December, its managing director said on Friday.
But margins are expected to recover in the fourth quarter, helped by a product price hike in December and higher sales of defence vehicles, R Seshasayee told Reuters by phone from the company's headquarters in the southern Indian city of Madras.
Earlier on Friday, Ashok Leyland Ltd , India's second-biggest truck maker, reported a 63.1 percent rise in net profit in October-December from a year ago to 379.86 million rupees ($8.3 million).
But that was way below a median estimate of a 140.1 percent profit rise in a Reuters' poll earlier this month, and its shares closed one percent lower at 260.75 rupees despite a four percent jump in Bombay's key share index.
Compared to the preceding quarter, net profit was down 29 percent as the operating margin dropped to 9.95 percent in the third quarter from 12.78 percent in July-September.
"I had been saying that there is a surge in raw material costs. I had been cautioning that we would be impacted by that. We took a pricing action only by the tail end of December, so part of that will get corrected only in the last quarter," Seshasayee said.
"The second issue is that our defence supplies were below budget, but we will catch up. For the year as a whole, I have said that it is not going to be less than what we did last year, therefore we will catch up in the last quarter."
Ashok Leyland expects to sell about 5,000 vehicles and kits to the armed forces in fiscal year 2003/04 (April-March).
Seshasayee also said that an 8.85 percent rise in "other expenditure" over the preceding quarter is due to one-time research and development expenditure.
"It wouldn't be correct for me to put a number (on the improvement in operating margin) but yes, there will be a recovery on margins."
As with market leader Tata Motors Ltd , vehicle sales at Ashok Leyland have boomed this year, fuelled by robust economic growth and the need to move cement and steel to build a national network of highways.
Ashok Leyland's sales jumped 39 percent in the first nine months of this fiscal year to 32,776 vehicles. ($1 = 45.4 rupees)