Japan's Suzuki Motor sees 9.1 per cent profit slide

Tokyo: Suzuki Motor Corp on Thursday forecast a 9.1 per cent slide in operating profit for the current financial year as it expects a stronger yen and higher R&D costs to offset rising car sales mainly in India, its biggest market.

Japan’s fourth-biggest automaker expects profit of 340.0 billion yen ($3.10 billion) in the year to March 2019, versus a 374.6 billion yen median of 21 analyst estimates compiled by Thomson Reuters.

The forecast is based on an assumption that Japan’s currency will average around 105 yen to the US dollar - appreciating from 111 yen in the just-ended year - and 1.65 yen to India’s rupee, versus 1.73 yen.

That will result in a 22.0 billion yen hit to profit from currency swings, while increased research-and-development (R&D) expenses will have a negative impact of 20.0 billion yen.

With most of Japan’s seven major automakers having reported full-year profit forecasts, Suzuki and bigger rivals including Toyota Motor Corp and Honda Motor Co Ltd see a slide due to a stronger yen.

A firmer yen eats into profit repatriated from abroad and raises costs of exported vehicles and parts, making Japanese products less competitive overseas and denting profit margins.

Suzuki reported operating profit of 374.2 billion yen in the year ended March, outperforming analyst estimates.

It anticipates a 2.3 per cent rise in global vehicle sales to a record 3.3 million units, led by a 6 percent rise in India. It expects to sell 1.65 million scooters and motorcycles globally, up 4.2 per cent from last year.

Suzuki’s bet on growing in emerging markets continues to pay off after the automaker for decades focused on expansion in India over other markets including the United States - the world’s second-largest auto market and a key country for most Japanese automakers but where Suzuki no longer sells cars.

Its Alto and Baleno compact hatchbacks and Vitra Brezza compact sport utility vehicle are among the best-selling cars in India, the world’s fifth-biggest passenger car market. Suzuki dominates that market through its majority stake in Maruti Suzuki India Ltd, India’s largest automaker.

Suzuki plans to spend 160 billion yen on R&D this year, from 139.4 billion yen last year, as it focuses on automated driving functions and electric vehicles (EV) to keep up with competition.

To establish a presence in the local EV market, Suzuki and Toyota have been deepening a wide-ranging partnership which will enable Suzuki to leverage Toyota’s massive R&D firepower to help it make EVs, while Toyota taps Suzuki’s expertise in compact cars.