Maruti shares tumble 12 pct after profit drops

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Shares in Maruti Suzuki plunged more than 12 percent in heavy volume on Monday after the leading Indian car maker announced an unexpected 20 percent drop in quarterly profit.Higher royalty payments to Japan's Suzuki Motor Corp following a new agreement, which was one of the reasons for the profit drop, are expected to squeeze the company's margins in the coming quarters, analysts said."There has been a 150 basis rise in royalty expenses (as a percentage to sales) and the effect on earnings per share is about 10 percent," said Jatin Chawla, auto analyst with the institutional desk of India Infoline."Raw material costs have been easing but the effect of higher royalty payments will be there in the next few quarters," he said.Shares in Maruti, with a market value of $8.3 billion, slumped as much as 12.1 percent in their biggest intraday fall in more than 6 years as brokerages such as UBS, Bank of America Merrill Lynch and Macquarie downgraded the stock.Analysts had expected Maruti, which sells every second new car in India, to report profit rose by a fifth.In comparison, the main BSE index was down 0.1 percent and the sector index was down 2 percent.Maruti, which 54.2 percent owned by Suzuki Motor, reported a net profit of 4.65 billion rupees ($98.9 million) in its fiscal first quarter ended June, compared with 5.84 billion a year earlier.The earnings were also hit by a rise in raw material costs and weakening of the euro against the rupee which hit export revenues.Chawla said rising competition in the auto sector would restrict the company's flexibility to raise prices in the months ahead.India's robust economy is boosting demand for vehicles, but companies expanding their operations and higher costs linked to tougher emission norms and rising prices of raw materials such as steel are worries for the sector.Motorcycle maker Hero Honda Motor, in which Japan's Honda Motor Corp holds a 26 percent stake, was trading down nearly 5 percent.(Reporting by Janaki Krishnan and Ami Shah; Editing by Ranjit Gangadharan)(For more business news on Reuters India click http://in.reuters.com)
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