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April 12, 2000
Maruti projects two years of 40% drop in net profit
Maruti Udyog Limited, or MUL, has projected that it might incur a 30-40 per cent drop in net profit for two successive fiscals -- 1999-00 and 2000-01 -- despite a sizeable surge in turnover.
The projected drop in net profit has been attributed to high interest burden and depreciation on heavy investments for introduction of new models and for increasing capacity at its Gurgaon plant, an internal projection of the company's financial department said.
Riding on increased sales of its passenger cars and on the strength of introduction of two new models -- Baleno and Wagon-R, the company is targetting to record a turnover of Rs 95 billion in the 1999-2000 fiscal.
It has plans to ramp it up to over Rs 120 billion in the current financial year. In addition, the company has sold spare parts to the tune of Rs 3.80 billion during the 1999-2000 fiscal, up from Rs 3.30 billion a year ago.
The company had invested Rs 12 billion in the previous fiscal for expanding capacities, upgrading existing vehicles and setting up new vehicle assembly lines.
''The depreciation on these investments is likely to be in the range of Rs 2 billion. This, coupled with the interest burden and the cost impact of the price drop that was effected in January 1999, would result in a drop in net profit,'' company sources said.
''The bottomline will be plagued for the current fiscal as well due to the interest burden and depreciation on heavy investments. The drop in net profit is likely to be in the range of 30-40 per cent,'' the sources added.
In addition, the company is planning to infuse a Rs 6-billion fresh capital over the next two to three months to set up production lines for its next-in-line small car Alto and for expanding and modernising existing capacities.
Of this total infusion, Rs 4 billion would be borrowed from banks and financial institutions as long-term loans, the sources said.
Alto, scheduled to be launched by July-August this year, would be available in two versions -- 800cc and 1000cc. This would be followed by the rollout of the station-wagon version of Baleno in September.
''The fresh Rs 6-billion investment would be made for setting up new production lines for the Alto and also for expanding and modernising the existing capacities.''
The loans have already been tied up.
Maruti had recently inaugurated its third plant, with a capacity of 100,000 vehicles per annum, at its existing production facility in Gurgaon, Haryana. This has raised the company's total installed capacity to 350,000 vehicles per annum, while increasing the production capability to nearly half-a-million vehicles annually.
The production facilities at MUL include blanking lines, press shop, weld shop, paint shop, parallel assembly lines, engine assembly lines, machine shop, testing and inspection lines.
MUL managing director Jagdish Khattar had recently announced that the company was not only confident of utilising the additional capacities generated by plant iii but that it would very soon need to augment the existing capacity in order to cater to growing market demand.
Meanwhile, MUL crossed the target of selling 400,000 vehicles for 1999-2000. It closed the year with sales of over 406,000 units, up 21.38 per cent over 1998-99. This sales volume by the market leader comprises over 21,000 units of exports.
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