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By Rina Chandran
MUMBAI, April 24 (Reuters) - India's top car maker,India Ltd , posted a surprise 34 percent fall in quarterly net profit as a large depreciation charge outweighed higher sales, knocking its shares lower.
, 54.2 percent owned by Japan's Motor Corp , has about half the India car market with models such as the best-selling Alto and Swift hatchbacks.
It has been shifting consumers to premium cars such as its SX4 and Dzire sedans but is facing more competition from rivalsMotor , Motor and .
It will see the greatest pressure in its dominant small car segment, withMotors scheduled to launch the Nano, priced at just above $2,500, and a venture of Bajaj Auto with and Motor building a $3,000 car.
"The market is showing mixed signals: household incomes are higher, but consumer confidence is lower because of high interest rates and inflation, and there is more competition," Managing Director S. Nakanishi said of the outlook on an analysts' call.
"The pressure on the cost side will continue, but we expect that sales growth will be buoyant," he said.
Maruti said net profit fell to 2.98 billion rupees ($75 million) in the fiscal fourth quarter to end-March, from 4.49 billion rupees in the same period a year earlier.
Net sales rose to 47.63 billion rupees from 44.3 billion.
That lagged a forecast of net profit of 4.61 billion on sales of 47.76 billion in a Reuters poll of 11 analysts.
Maruti said it had adopted shorter depreciation cycles for its equipment and tooling assets, and made an additional provision of 2.1 billion rupees for depreciation for 2007/08.
It also made a one-time payment of 545 million rupees to dealers following an excise duty cut on small cars, and suffered a net loss of 505 million rupees in the quarter after it marked-to-market its derivative positions.
Maruti shares fell as much as 4.3 percent before recovering some of their losses to close at down 2 percent at 745.95 rupees in a Mumbai market that ended up 0.1 percent.
Maruti, whose full-year profit rose 11 percent to 17.31 billion rupees, said operating margin in the quarter fell to 10 percent from 12.5 percent a year earlier, hit by depreciation and the high cost of raw-materials such as steel and copper.
Higher interest rates have also bumped up vehicle loan rates and depressed demand.
But greater economies of scale from new factories, a higher proportion of premium vehicle sales, and a cut in excise duty on small cars will help offset some of the pressure.
Parent Suzuki Motor reported a 12 percent rise in annual operating profit, but forecast a 6.3 percent drop for this year on a weaker dollar. [ID:nT346877]
Maruti, which has launched seven new models in the last three years, is increasing capacity for an annual output of 1 million vehicles by 2009/10, a year earlier than planned, Nakanishi said, as exports grow.
"Their exports will help balance any sluggishness in the domestic market," said Vineet Hematsaria, an analyst at B&K Securities, which has a buy rating on the stock.
Maruti will make 150,000 A-Star cars from late 2008, first for export to Europe. It will then make the Splash.
Maruti's sales edged up 1 percent to 202,225 units in the Jan-March quarter, and rose 13 percent to 764,842 vehicles in 2007/08, the highest number it has ever sold. It will account for about a third of parent Suzuki's global sales target in 2010/11.
Passenger vehicle sales in India are widely forecast to top 2 million units by 2010.
Shares in Maruti, which has a market value of $5.5 billion, fell 16 percent in the quarter, compared to a 20 percent fall in the auto index and a 23 percent decline of the key index .
Its shares trade at 10.3 times forecast earnings, compared to 12.7 times for top vehicle makerMotors. ($1=40 rupees) (Editing by John Mair and Lincoln Feast)