India's top carmaker Maruti Suzuki reported Tuesday a surprise 18-per cent jump in quarterly net profit but warned of sluggish sales as higher interest rates crimp consumer borrowing.
Maruti, 54-per cent owned by Japan's Suzuki Motor, said fiscal first quarter profit rose to Rs5.5 billion ($124 million) from Rs4.65 billion a year earlier on sales up 3.3 per cent to Rs83.2 billion.
The bottom-line performance was boosted by tight cost controls and one-off financial gains, defying market forecasts that profit would fall to around four billion rupees in the three months to June.
"Sales volumes have not grown significantly, we have tried to control expenses across the spectrum," chief financial officer Ajay Seth told analysts in a conference call.
The New Delhi-based company's earnings have become an increasingly important contributor to its parent, Suzuki Motor, Japan's second-largest compact car maker.
Seth said he expected market conditions to "continue to be sluggish," hit by higher fuel costs and a series of interest rate hikes by India's hawkish central bank to tame near-double-digit inflation, the latest of them on Tuesday.
"The rate hikes will have an impact on consumer sentiment," he said, but added he hoped India's religious festival season, which starts in September and is the traditional buying season, would lure consumers back into showrooms.
Sales were strongest in the small family car segment, rising 22 per cent in the quarter from a year earlier. Overall domestic sales grew just 3.2 per cent to 250,683 units while exports slipped nearly a quarter to 30,843 units.
Maruti's results Tuesday coincided with an unexpectedly aggressive 50 basis point rate hike by the central bank -- its 11th increase since March 2010 -- that alarmed business leaders.
India's auto industry is expected to grow by 10 to 12 per cent this year, far slower than last year's scorching 30 per cent growth as rising borrowing costs and higher fuel prices put the brakes on rising demand.
"The interest rates hike and fuel prices could dampen sales," Mahantesh Sabarad, analyst with Fortune Equity Brokers in Mumbai, told AFP.
Maruti also faces intensifying competition from South Korea's Hyundai, which is India's second-largest carmaker, and other global entrants from General Motors to Ford seeking to counter demand stuck in low gear in the West.
"We don't see a good traction in volume growth," Prayesh Jain, analyst at Mumbai brokerage IIFL India told CNN-IBN network.
India's growing automobile market, the world's second-fastest growing after China, has been driven by new affluence among its burgeoning middle class.
With just one in 10 households in urban areas owning a car and one in 50 in rural areas, the country remains a highly under-penetrated market.