Manesar violence, discounts behind fall in Maruti Suzuki profit?

Maruti Suzuki India, the country's biggest carmaker, posted a 5.4-per cent fall in net profit at Rs 227.5 crore for the July-September quarter, reflecting the setback due to the brutal violence at the Manesar plant and the huge discounts that the company had to shell out to push up sales in the stagnant auto market.

Maruti was forced to close its Manesar factory for more than a month after its workers went on a rampage with iron rods and car parts killing a company general manager and grievously injuring scores of supervisory staff in July.

During the quarter, the company also doled out huge discounts to push up sales of its petrol variants which cost company about Rs 14,750 per car.

The company had posted a net profit of Rs 240.45 crore in the corresponding period last year. Net sales during the second quarter of this fiscal, however, went up by 8.53 per cent to Rs 8,070.11 crore from Rs 7,435.85 crore in the year-ago period.

"This quarter was an unusual one. We faced many challenges during this period…. The company had an unfortunate incident of labour violence in July and had locked out the Manesar plant," MSI managing director and chief executive officer Shinzo Nakanishi said.

Nakanishi added that due to the huge difference between diesel and petrol prices, the automobile industry continued to be skewed towards diesel variants during the quarter.

"The overall industry sales for petrol vehicles declined by 20 per cent while that of diesel increased by 40 per cent during the quarter," Nakanishi said.

The company sold 2,09,954 units in the domestic market during the quarter compared to 2,22,406 units in the same period previous year. It also exported 20,422 units as against 29,901 units in last year.

MSI chief financial officer Ajay Seth said: "Due to the violence, the overall loss of production was about 77,000 units". MSI paid Rs 432 crore of royalty to its parent company Suzuki Motor Company of Japan, which is 5.4 per cent of its net sales, in the quarter as against Rs 432 crore in the same period last year, which was six per cent on net sales.

When asked about the financial implications of the recently signed three-year wage settlement agreement with the workers, Seth said: "Because of the settlement, the wage bill of the company will increase by 0.15-0.3 per cent of the net sales over the next two years". Chief operating officer (marketing and sales) Mayank Pareek said there has been some improvement and so discounts in Q3 and Q4 should come down.

In association with Mail Today