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June 9, 2000
Maruti's profit to be hit this fiscal, says Khattar
The bottomline of Maruti Udyog Limited, or MUL, will be under pressure in the current fiscal despite having targetted a 15 per cent growth in turnover, company managing director Jagdish Khattar said.
The drop in profits would be on account of heavy investments undertaken at its Gurgaon plant, huge deprecations and the Rs 3 billion that the company had borrowed from the market, Khattar said in an interview here.
''We expect the automobile industry to grow at 12-15 per cent this year and Maruti would grow in line with the industry's growth. Our sales and turnover is expected to grow at 15 per cent, but bottomlines would be hit,'' he said.
''Margins would surely be under pressure. We have made huge investments at our Gurgaon plant and there is so much of depreciation arising out of these. In addition, the financial costs on introduction of new models and the market borrowing will also put pressure on our profits.''
Maruti had recorded a net profit of Rs 5.22 billion during 1998-99, while turnover stood at Rs 81.18 billion. It closed the 1999-2000 fiscal with a turnover of over Rs 90 billion. However, Khattar said the company is in the process of calculating the net profit. But he stated that profits would be lower in the 1999-2000 fiscal as well.
The increasing competition is also taking its toll on Maruti, which had recorded a 15.1 per cent drop in passenger car sales during May, 2000, having sold 25,765 units as against 30,377 units in April. However, the company led the B-segment of the automobile industry with total sales of 8,737 units.
Sales of MUL's new offerings -- Wagon-R and Baleno -- and also its bread-and-butter Maruti-800 witnessed a decline during May. It sold 11,137 units of M-800 in May, 2000, down from 13,596 units a month ago. Omni sales dropped 25 per cent from 6,081 units in April to 4,557 units in May.
Meanwhile, faced with a major demand slump across the entire automobile industry, Maruti had implemented a five-day week for a trial period of three-weeks.
The step has been initiated to cut down production in view of the major demand slump that the car industry is witnessing now, Khattar said.
''There has been a lot of uncertainty in the market over the past couple of months due to the sales tax issue. Now with the government finally deciding to implement a 12 per cent uniform sales tax, several customers have postponed their purchase decisions. So we have also decided to cut back production.''
However, the company hopes to resume six-day working week from June 19, 2000, when the plant reopens after a week-long maintenance shutdown.
MUL has an installed capacity of 350,000 units a year and is, at present, operating at 140 per cent capacity utilisation. ''The production was exceeding demand, and so we have decided to introduce a five-day week in certain core divisions like weld-shop and assembly line,'' he added.
Meanwhile, Maruti had raised Rs 3 billion from the market as short-term and long-term borrowings to fund its ambitious expansion programme, new car launches and increased working capital requirement. Credit rating agency ICRA Limited has assigned an LAAA rating to the Rs 2 billion long-term non-convertible debenture programme and A1 plus rating to the Rs 1 billion commercial paper programme of MUL, indicating highest safety.
MUL was incorporated in February 1981 as a Government of India-owned company, and had entered into a license and joint venture agreement with Suzuki Motor Corporation, or SMC, of Japan in October 1982 to manufacture fuel efficient cars at low cost.
Following the JVA, SMC increased its stake in stages to 50 per cent by 1992. MUL's equity capital of Rs 1.32 billion and its shareholding has remained unchanged since then with SMC holding 50 per cent, GoI 49.74 per cent and MUL Employees Mutual benefit Fund 0.26 per cent.
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