Shares in India’s leading carmaker, Maruti Suzuki, fell the most in more than a year in Mumbai after first-quarter net income unexpectedly dropped.
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Maruti booked a 20% drop in profit, its first decline in five quarters, as it paid additional royalties to Suzuki and the depreciation of the euro hit exports.
The company paid INR1.9bn (US$41m) in additional royalties to parent Suzuki in the quarter which included INR650m (US$13.6m) of charges due between 16 December and 31 March, Maruti said.
India had capped the payment of royalty by local companies to their overseas technology partners at 5% of domestic sales and 8% of exports but the restrictions were removed last December.
Maruti paid about INR9,900 (US$2.7) per vehicle as royalty to Suzuki in the fiscal year ended last 31 March. Analysts said this payment could rise to as much as INR15,000 (US$314) this year.
The increase in royalty payments comes as Maruti faces increasing competition at home as Volkswagen, Ford and General Motors introduce new compact cars and expand factories in India.
Maruti’s net income fell to INR5.84bn (USD120m) in the three months ended 30 June, the company said, adding that increased raw material costs eroded gains from higher vehicle sales.
Spending on steel and other raw materials increased 26% in the quarter as a reviving global economy boosted commodities prices.
The carmaker, 54.2% owned by Suzuki, sold 283,324 cars, vans and SUVs in the quarter in India and overseas, compared with 226,729 a year earlier.
