Despite the month-long shutdown at Mansear, Maruti managed to grow its revenues by 8.5 per cent during the September quarter — thanks to the base effect, due to strike and lock-out in the same quarter last year. Though volumes declined nine per cent for the quarter due to the unrest, launch of the premium-priced Ertiga helped Maruti increase its average realisation from Rs 2.94 lakh to Rs 3.5 lakh. This helped a 0.4 percentage point improvement in the operating margins to 6.1 per cent for the quarter.

Notwithstanding the improvement in margins, Maruti’s profit declined 5.4 per cent to Rs 228 crore. Lower other income, along with higher depreciation and finance costs (from ongoing diesel engine capacity expansion) capped profits. Adverse currency movement negated the benefit from softer commodity prices.

To boost sales of petrol cars, Maruti offered higher discounts during the quarter. The average discount per vehicle increased to Rs 14,750, compared to Rs 11,650 for the June quarter and Rs 12,600 September last year. Production ramp up at the Manesar plant, successful launch of the Alto 800 and higher Ertiga sales may help the company improve its margins in the second half.

US business drives Dr Reddy’s sales.

Drug maker Dr Reddy’s Laboratories posted a 32 per cent increase in profits to Rs 407 crore. Lower selling and administrative expenses in the Russian market and lower R&D expenses enabled Dr Reddy’s improve its operating margins by 2.9 per cent to 24 per cent. Ramp up in sales of products such as Ziprasidone, Fondaparinux, Tacrolimus helped a 47 per cent surge in US revenues to Rs 927 crore.

Pharmaceutical services and active ingredient segment’s revenues jumped 33 per cent on the back of increased supplies of products which lost patent protection. Indian formulation sales grew 12 per cent to Rs 388 crore, slower than the 15 per cent growth for the market. While lower attrition and rebounding prescription growth in the domestic market should help revenue growth; price erosion and competition in the US market remains the key challenge.

Relief for tyre companies

Tyre companies such as Apollo, MRF, JK, Birla and Ceat heaved a sigh of relief this week as the much feared penalty for cartelisation was not imposed by the Competition Commission of India. During the period under contention (2005-10), the CCI did find a few trends in the financials of these companies pointing to cartelisation. For one, tyre companies did not pass on the benefit of excise duty cuts during this period to customers. Ditto with times when prices of natural rubber, the key raw material, dropped. Three, tyre companies did not utilise their full capacity, limiting the supply. Four, they inflated some miscellaneous expenses into cost of production to reduce profit margins.

But based on replies by the companies to these findings, it noted that although factors such as the presence of a concentrated market, high entry barriers and a homogenous product supported cartel formation, the high bargaining powers of vehicle manufacturers, options for customers to not replace the tyres but retread, increasing radialization and threats from imports went against sustaining a cartel structure.

A minority ruling by a dissenting member though, finds the companies guilty of cartelisation for the year 2009-10. The member has recommended a penalty of 0.5 times the net profits of that year for these companies.

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