India's Top Carmaker Maruti Sees Profits Slide 37%

Lack of credit coupled with high interest rates slows demand

As costly borrowing and higher raw material prices put the brakes on earnings, top Indian carmaker Maruti Suzuki India reported a 37% slide in quarterly profit on Oct. 24.

Net profit for the second quarter to September slumped to 2.9 billion rupees (US$59 million) from 4.67 billion in the same period last year, said Maruti, 54.2% owned by Japan's Suzuki Motor Corp. Sales rose 6.1% to 48.06 billion rupees during the second quarter from 45.3 billion over the same period last year.

"Lack of credit availability, high interest rates and depressed consumer sentiments have affected our sales," Maruti Suzuki India Managing Director Shinzo Nakanishi said.

To counter the profit slowdown in Asia's fourth-largest automobile market, the company said it was "laying special focus on growing customer segments, including corporates, rural households and government employees."

Maruti, which holds over 50% of India's car market, said it was also increasing "its focus on its cost reduction programs within the company as well as with business associates."

The New Delhi-based company said the profit tumble was mainly due to higher borrowing costs, a rise in material costs, the impact of currency changes and higher provisions for depreciation due to new strict rules it had adopted. However, "despite the tough macroeconomic situation," premium models like the DZire sedan "continue to show strong sales," the company said.

The slowing profits reflected a downturn in car demand in India, which has been hit by interest rates at seven-year highs. In September, car sales in India rose by just 2.8% to 108,823 from a year earlier -- a far cry from double-digit growth in previous years. The Indian auto market is expected to expand by around 10% this year.

Car penetration is just seven per 1,000 people compared to 550 per 1,000 in countries such as Germany.

India's automotive industry, which produces around 1.5 million vehicles annually, is worth $34 billion a year and accounts for 5% of India's gross domestic product.

Copyright Agence France-Presse, 2008

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