Higher royalty payout, increased employee costs and higher discounts are cited as the reasons

Maruti Suzuki India Ltd (MSIL) on Saturday reported a 18 per cent decline in its net profit for the third quarter of current fiscal (October-December 2010-11) at Rs.565.17 crore, while its net sales rose by 26.49 per cent to Rs.9,276.73 crore.

Higher royalty payout, increased employee costs and higher discounts are said to be the reasons behind the decline in net profit.

Pressure on margin

The third quarter this year was marked by pressure on margins primarily due to adverse foreign exchange movement and higher royalty payout, said MSIL Chief Financial Officer Ajay Seth.

Royalty

Royalty payment was Rs.460 crore, which was at about 5.5 per cent of sales. MSIL incurred a one-time cost of Rs.51 crore on employee payment. Overall, its employees costs soared by 75.50 per cent to Rs.232.45 crore from Rs.132.45 crore.

It has a total of 9,032 employees. Similarly, its average discount during the quarter was Rs.10,700 per vehicle, which was Rs.1,000 higher than the previous quarter.

Increase in commodity price led to intense pressure on margins although the company managed to counter through cost efficiency measures.

Raw material

During the quarter, consumption of raw materials and components was higher by 27 per cent at Rs.6,959.03 crore against Rs.5,491.86 crore in the year-ago period.

Total sales grew by 28.16 per cent to over 3.3-lakh units from 2.58-lakh units in the year-ago period.

Production

The company had already ramped up its production by about 10 per cent in October last year to over 1.1-lakh units a month, taking its total annual output to 14-lakh units in 2011-12.

Domestic sales grew by 37 per cent to almost three-lakh units, while exports went down by 20.34 per cent to 31,160 units.

Revenues from exports during the quarter stood at Rs.839 crore against Rs.1,314 crore in the year-ago period.

Keywords: MarutiprofitsQ1 results

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