India's biggest carmaker eyes Africa investment after quarterly profit fall

April 26, 2016 3:49 PM

Maruti is evaluating the suitability of different African markets for an assembly plant, managing director Kenichi Ayukawa told reporters on Tuesday, adding that the study is in its early stages.

Corporate office of Maruti Suzuki India Limited is pictured in New Delhi, India, February 26, 2016.

India's biggest carmaker Maruti SuzukiIndia is conducting a feasibility study for a new assembly plant in Africa, a top executive said after the company posted its first fall in quarterly net profit in two years.

A push into Africa, where there is high demand for small, inexpensive cars, makes sense for the likes of Maruti Suzuki, analysts have said. Establishment of it own plant in the region could also help it to contend with stricter rules on local sourcing, which have weighed on its exports to the region.

Exports to African countries including Algeria, Egypt and South Africa made up about 8 percent of Maruti's exports of 123,897 vehicles in the year to March 31. Maruti would need to sell more than 50,000 vehicles a year in Africa to justify setting up an assembly plant, Ayukawa said.

Increased revenue from overseas markets would not go amiss for Maruti, which is owned by Japan's Suzuki Motor Corp. Its exports grew 2 percent in the past financial year, against domestic sales up 11.5 percent.

Maruti expects the current financial year, which runs to the end of March 2017, to be tough on many counts, with foreign exchange looking even less favourable and commodity prices rising in India, Chairman R C Bhargava said after the company posted an 11.7 percent fall in fourth-quarter net profit.

Even so, strong sales and lower costs in the previous nine months helped Maruti to a record annual profit of 45.71 billion rupees.

The carmaker is targeting double-digit sales growth in India in the 2016/17 financial year and has earmarked 44 billion rupees ($661 million) for capital expenditure, versus 25 billion rupees the previous year, Bhargava said.

Shares in Maruti ended 3.85 percent higher, outperforming a 1.3 percent gain for the wider market.

Higher expenses and a one-off production loss because of civil unrest near one of its factories lowered Maruti's fourth-quarter profit to 11.34 billion rupees. That was down from 12.8 billion rupees a year ago but in line with analyst expectations, Thomson Reuters data showed.

The company, which sells about one in every two cars in India, said that net sales rose 12.5 percent to 149.3 billion rupees.

Analysts said the earnings were strong considering the company offset the impact of a weaker rupee versus the yen with a better product mix and reduced imports of parts from Japan.

($1 = 66.5592 Indian rupees)