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Maruti: A triple treat! - Views on News from Equitymaster
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Maruti: A triple treat!
Jan 25, 2010

Performance summary
  • Topline grows by a strong 62% YoY during the quarter on the back of a 49% growth in volumes.
  • A strong 8.7% YoY improvement in operating margins leads to near tripling of operating profits.
  • Most of the growth in operating profits filters through to the bottomline as it registers a growth of 222% YoY
  • Bottomline for the nine month period grows by 89% YoY on the back of a 47% YoY growth in topline.


(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
No of units sold 173,494 258,026 48.7% 555,529 730,943 31.6%
Net sales 46,258 75,029 62.2% 144,196 211,985 47.0%
Expenditure 43,290 63,689 47.1% 130,369 183,552 40.8%
Operating profit (EBDITA) 2,968 11,339 282.1% 13,828 28,432 105.6%
EBDITA margin (%) 6.4% 15.1%   9.6% 13.4%  
Other income 1,777 913 -48.6% 4,959 4,178 -15.8%
Interest (net) 45 84 85.6% 421 207 -51.0%
Depreciation 1,775 2,028 14.2% 5,094 6,020 18.2%
Profit before tax 2,925 10,140 246.7% 13,272 26,384 98.8%
Tax 789 3,265 313.8% 3,516 7,973 126.8%
Profit after tax/(loss) 2,136 6,875 221.9% 9,755 18,411 88.7%
Net profit margin (%) 4.6% 9.2%   6.8% 8.7%  
No. of shares (m) 288.9 288.9   288.9 288.9  
Diluted earnings per share (Rs)*         72.1  
Price to earnings ratio* (x)         20.0  
*trailing twelve months earnings

What has driven performance in 3QFY10?
  • A low base effect and a favorable macroeconomic environment have combined to lead to yet another exciting quarter for Maruti. To elaborate on the latter, favourable conditions like the government’s stimulus package, buoyant semi-urban markets, low interest rates and improved financing by banks have helped the company clock good numbers in the domestic market.

  • During the quarter, domestic volumes came in higher by 39% YoY, receiving help from the company’s old warhorses like the Alto and Wagon R of the A2 segment. This segment, where these models belong to forms more than 73% of the total domestic sales of the company and the same grew by nearly 39%. This explains most of the domestic volume growth. Other segments like the A-3 and the C segment also did well, growing by 42% and 57% respectively on a YoY basis.

  • Exports also continued with its stellar performance, growing by nearly 167% during the quarter as the company benefited from an appreciating Euro, scrappage scheme by some European governments and efforts in growing sales in the non-European markets

  • Besides significantly higher volumes, higher average realisations per car sold helped Maruti post a robust 62% growth in revenues during the quarter.
    sales break up
    Segment 3QFY09 3QFY10 (% change) 9mFY09 9mFY10 (% change)
    A1 8,521 8,738 2.5% 37,307 24,594 -34.1%
    C 15,557 24,426 57.0% 56,527 68,859 21.8%
    A2 115,241 159,678 38.6% 358,751 459,507 28.1%
    A3 17,911 25,388 41.7% 52,700 69,613 32.1%
    Total Passenger cars 157,230 218,230 38.8% 505,285 622,573 23.2%
    MUV 1,630 680 -58.3% 5,374 2,835 -47.2%
    Total domestic 158,860 218,910 37.8% 510,659 625,408 22.5%
    Export 14,634 39,116 167.3% 44,870 105,535 135.2%
    Total Sales 173,494 258,026 48.7% 555,529 730,943 31.6%

    On the costs front, economies of scale and lower commodity prices enabled the company to reduce all the cost heads as a percent of sales. Consequently, operating margins came in higher by 8.7% and operating profits nearly tripled. The sustenance of margins of similar magnitude remains questionable going forward as some cost headwinds have started to make their appearance.

    cost break up
    (Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
    Raw materials 36,617 55,901 52.7% 111,618 160,007 43.4%
    % sales 79.2% 74.5%   77.4% 75.5%  
    Staff cost 1,104 1,325 20.0% 3,380 3,923 16.1%
    % sales 2.4% 1.8%   2.3% 1.9%  
    Other expenses 5,569 6,464 16.1% 15,371 19,623 27.7%
    % sales 12.0% 8.6%   10.7% 9.3%  

  • Bottomline growth for the quarter has come in at 222% YoY, slightly lower than the growth in operating profits mainly on account of higher interest costs and higher tax charges.Despite higher interest charges, the interest coverage still remains extremely good for the company and as such, there is nothing to worry about.

What to expect?
At the current price of Rs 1,440, the stock trades at a multiple of 10 times our estimated FY12 earnings. The company’s performance has come in line with our latest revised estimates. While the Indian growth story in automobiles remains intact, intensifying competition and headwinds in the form of higher raw material costs and rising interest costs might affect company performance going forward. Furthermore, even the valuations are not that attractive anymore. Hence, we remain cautious in our view towards the company’s stock.

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