India's biggest carmaker Maruti Suzuki on Tuesday reported a surprise 18-percent jump in quarterly net profit, despite sluggish sales caused by soaring interest rates and higher fuel costs.
Maruti, 54 percent owned by Japan's Suzuki Motor, said profit in the first fiscal quarter rose to 5.5 billion rupees ($124 million) from 4.65 billion a year earlier on sales that advanced 3.3 percent to 83.2 billion rupees.
The bottom-line performance for the three months to June surprised analysts who had expected profit to fall to around four billion rupees.
"The market was sluggish, mainly due to a sharp increase in fuel prices and higher interest rates," the New Delhi-based company said in a statement.
"Higher commodity prices and foreign exchange volatility put pressure on margins as compared to the same period the previous year," it added.
Steel, rubber and other raw material costs have all risen, squeezing profit margins.
Sales were strongest in the small family car segment, rising 22 percent from a year earlier. Maruti's overall domestic sales grew just 3.2 percent to 250,683 units while exports slipped to 30,843 units from 40,437 a year earlier.
Despite the better-than-expected performance, Maruti shares fell 0.32 percent to 1,177.95 rupees on worries that rising high interest rates would cut further into sales.
On Tuesday, India's aggressive central bank hiked rates by a higher-than-expected 50 basis points -- its 11th increase since March 2010 -- as it battles to tame near double-digit inflation.
Maruti sells around half of India's cars but faces mounting competition from the country's second-largest carmaker, South Korea's Hyundai, and other rivals.
India's growing automobile market, driven by new affluence among its burgeoning middle class, has become increasingly vital to Suzuki with a bigger chunk of its earnings coming from Maruti.
With just one in 10 households in urban areas owning a car and one in 50 in rural areas, India remains a highly under-penetrated market, drawing a flood of global entrants from General Motors to Ford and Renault.