Riot-hit Maruti Profits Dive 23% in Q1

Adverse currency movements as well as lower demand for gasoline-powered cars as buyers opted for cars powered by cheaper diesel fuel affected profits.

Missing market forecasts as the company struggles to recover from deadly labor unrest, India's biggest carmaker Maruti Suzuki Saturday reported a 23% plunge in quarterly profit.

Maruti said net profit fell to 4.24 billion rupees (US$76.6 million) in the first quarter from 5.49 billion rupees a year earlier, marking its fourth straight quarterly profit fall. Analysts expected Maruti, 54.2% owned by Japan's Suzuki Motor, to post a profit of around 5.0 billion rupees for the three months to June.

"Adverse currency movements, notably the yen-rupee exchange rate, impacted profits negatively," Maruti said, adding demand for petrol cars suffered "sharp de-growth" as buyers opted for cars powered by cheaper diesel fuel.

The price of importing components and technology from Japan has shot up due a slide in the value of the Indian rupee.

The figures released Saturday were for the period up to June 30 and did not reflect the unrest that has forced Maruti to indefinitely shut down the plant which makes the firm's top-selling cars such as the Swift hatchback.

The disappointing results come as Maruti strives to recover from the worst-ever labor unrest in the company's history on July 18 that left a manager dead and nearly 100 other executives hurt at one of its main plants. orkers chased managers with iron rods and car parts, smashing limbs and setting fire to parts of the Manesar plant after a row over an employee's suspension escalated.

The figures released Saturday were for the period up to June 30 and did not reflect the unrest that has forced Maruti to indefinitely shut down the plant which makes the firm's top-selling cars such as the Swift hatchback. Maruti, which is battling fierce competition from Hyundai and other rivals, said on Friday it had begun assessing the extent of the damage at the plant and did not know when it would reopen. "The company will announce its decision to this effect only when it is assured of employee safety," Maruti said.

Executives caught up in the rioting have said they are fearful of returning to their jobs at the Manesar plant that produces 550,000 vehicles a year – 40% of the company's annual output.

A protracted closure would be a major setback for Maruti, whose profits slid 29% last year on the back of labor disputes.

"Their competitors are no doubt going to gain from this shutdown -- the likes of Hyundai and General Motors,"  said Mahantesh Sabarad, an analyst at Fortune Equity Brokers."If the plant doesn't restart soon, the company will definitely miss out on some festival sales." Sales of cars and other costly items typically climb during India's religious holiday period that peaks in October-November when purchasing is seen as auspicious.

Maruti, which sells nearly one out of every two cars in India, has already delayed the launch of a small car because of the Manesar plant's closure while its shares have tumbled by nearly 10% with investors fearful of a lengthy shutdown.

Labor discontent has been mounting in India, especially at carmakers such as Maruti, as inflation pinches pay packets and wide use of cheaper contract workers fuels unhappiness on shop-floors.

Maruti says it is still looking at the possible causes of the riot, saying "by any account, this is not an 'industrial relations' problem in the nature of management-worker differences" over labor conditions. "Our own workers hitting our managers is unimaginable," Shinzo Nakanishi, chief executive of Maruti Suzuki, said last week

Maruti's problems coincides with a demand slowdown in Asia's third-largest car market amid high interest rates and as the economy grows at its weakest pace in nine years.

-By Penny MacRae 

Copyright Agence France-Presse, 2012

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