Maruti Suzuki Cruising in High Gear Atop India Market

MUMBAI – Maruti Suzuki sales and exports for the fiscal year ended March 31 are not spectacular, but India’s largest auto maker turns in an otherwise robust balance sheet.

Sales and exports increased 3.3% over year-ago to 1.17 million units, according to the Society of Indian Automobile Manufacturers.

However, favorable currency-exchange rates and manufacturing efficiencies combined to increase preliminary estimates of Maruti Suzuki’s sales revenues 21.4% to Rs426.1 billion ($8.04 billion). Net profits for the year surged 40.7% to a record Rs23.9 billion ($451.3 million), more than three times the previous record of Rs6.9 billion set in 2009-2010.

Actual profits likely will be much larger than reported. The operating-profit margin increased to 10.6% from 7.3%, compared with year-ago.

The Japanese yen’s dramatic decline and the Japanese government’s new easy-money policy fueled Maruti Suzuki profits, but the auto maker helped itself by increasing production and devoting more financial resources to its products to make them more competitive.

“Maruti’s position remains unchallenged, because it understands the Indian market better,” a spokesman says.

The auto maker’s investment plans for a new assembly plant in Gujarat state remain on track, with production expected to begin in 2015-2016, Maruti Suzuki Chairman R C Bhargava says during a recent meeting with parent Suzuki Motors CEO Osamu Suzuki and Gujarat’s chief minister.

Maruti Suzuki absorbed its powertrain joint venture with Suzuki, then absorbed its seven wholly owned insurance subsidiaries during the financial year. The auto maker also added Rs2 billion ($37.8 million) to its cash balances from the merged companies, but their profits for the year are not included in the preliminary revenue estimates.

The yen’s value at the end of the fiscal year was 13% lower than prior-year, says Maruti Suzuki Chief Financial Officer Ajay Seth. “We have not yet seen the full impact of cost reduction through cheaper imports of parts from Japan and smaller royalty payments to them,” he says. “These will be more fully reflected in the next financial year.”

Maruti Suzuki currently calculates the exchange rate between the yen and the U.S. dollar at ¥94:$1, whereas the actual rate on March 31 was ¥98:$1. The yen-rupee exchange rate declined more than 9% during the fiscal year’s last quarter compared with prior-year.

Raw-materials costs fell 7.3% to Rs82.3 billion ($1.5 billion) in the past fiscal year. The weaker yen also allowed Maruti Suzuki to import 19.9% of its components from Japan, compared with 26% the previous year. The cost of royalty payments tumbled 25%. Those shifts increased the auto maker’s usage of locally produced components.

Maruti Suzuki also boosted vehicle prices 1% in January, raising profit margins on next-generation versions of the Swift, Dzire and Ertiga. A facelift incorporating some features of the timeworn 800 has turned the best-selling Alto hatchback into a new-generation entry-level car, the Alto 800.

The auto maker’s new managing director and CEO, Kenichi Ayukawa, is looking for continued improvement. “Maruti has been a market leader for 30 years,” he says. “But I would now like to write a new chapter in its history.”