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By Arif Sharif
NEW DELHI, Oct 31 (Reuters) - Maruti Udyog Ltd, India's biggest carmaker, reported an expected 3.1 percent rise in second quarter profit from the preceding three months and analysts said the firm was poised for sizzling growth in second half sales.
Maruti , held 54.2 percent by Japan's Suzuki Motor Corp , has been helped by a cut in product tax in February that allowed all carmakers to drop prices and low interest rates that have spawned cheap finance schemes.
Sales boomed 31 percent in the first half of the fiscal year to September from a year ago, aided also by robust exports, and analysts forecast a 25-30 rise in full-year unit volumes. Maruti sold 362,253 vehicles in fiscal 2002/03 (April-March)
"Conditions are very favourable for car demand. Consumers are upgrading from motorcycles to cars, roads are improving and interest rates are at their lowest in years," said an analyst at a domestic asset management firm, who declined to be named.
Maruti, which has a dominant 50 percent slice of the new car market of over 540,000 units, said net profit rose to 1.24 billion rupees ($27.4 million) in the quarter ended September 30 from 1.2 billion in the preceding three months.
Net sales gained 6.04 percent to 21.6 billion rupees from 20.4 billion in the previous quarter.
A Reuters poll of 10 brokerages earlier this month forecast a net profit of 1.25 billion rupees and revenue of 21.5 billion.
Maruti gave no figures for the year-ago second quarter since these were the first full results it declared following its listing in July after a blockbuster IPO.
Profits in the first half year vaulted 467 percent to 2.44 billion rupees helped by a waiver of royalty payments to its parent on some models and discounts on parts imports.
MARGINS IMPROVE
"The results are very good. Their operating margin has improved 60 basis points sequentially despite a price cut and the rise in steel prices," said Kalpesh Parekh, analyst at ASK Raymond James, adding he expected its shares to gain from here.
Maruti's shares closed up 5.79 percent at 323.8 rupees while the main benchmark index ended 2.64 percent higher.
Its shares have jumped 159 percent over its offer price of 125 rupees, outpacing a 36 percent rise in the benchmark Bombay index , as car industry sales rebounded sharply and investor preference for automobile stocks has grown.
The automaker, India's first stand-alone car company to list, said operating profit margin improved to 10.2 percent in the second quarter from 9.6 percent in the preceding quarter.
The margin improvement was despite a 294.2-million-rupee provision for a voluntary retirement plan. It also had a higher write-off for depreciation.
The New Delhi-based company, which revolutionised India's car industry after its entry in 1983 with its modern production techniques, would have posted even higher profits but a strike at a vendor hurt production in August-September and slowed sales.
Parekh said he expected sales in the second half of 2003/04 to to be helped by higher demand from small, upcountry towns.
Even though Maruti dominates India's new car market, it faces fierce competition from new entrants such as Hyundai , Honda , Ford , General Motors and local firm Tata Motors .
In 2000/01, it sank to its first ever loss owing to falling sales and rising costs but rebounded in the following year to post a profit helped by sharp cost cuts and productivity gains. ($1 = 45.29 rupees)