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Maruti Suzuki: Cost control pays off

Jan 28, 2013

Maruti Suzuki announced its results for the quarter ended December 2012 recently. The company reported a 45% YoY and 144% YoY growth in revenues and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales grow by an impressive 45% YoY during the quarter led by good growth in the volumes of 'Dzire', 'Ertiga' and enhanced export realisations.
  • Operating profits rise by a robust 121% YoY as margins improve by 2.8% YoY to 8%. The same is due to lower raw material costs and other expenses (as a percentage of sales).
  • Net profits surge by 144% YoY led by the superlative performance at the operating level.

Financial performance: A snapshot
(Rs m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
Total Vehicles Sold (No.) 239,528 301,453 25.9% 773,361 827,725 7.0%
Net sales 77,316 112,003 44.9% 238,601 302,839 26.9%
Expenditure 73,284 103,091 40.7% 222,057 280,539 26.3%
Operating profit (EBDITA) 4,032 8,913 121.0% 16,544 22,301 34.8%
EBDITA margin (%) 5.2% 8.0% 6.9% 7.4%
Other income 1,746 1,886 8.0% 5,300 4,134 -22.0%
Finance costs 176 459 161.1% 344 1,172 240.4%
Depreciation 2,989 3,583 19.9% 8,078 10,453 29.4%
Profit before tax 2,613 6,756 158.6% 13,422 14,810 10.3%
Tax 557 1,743 213.1% 3,469 3,285 -5.3%
Profit after tax/(loss) 2,056 5,013 143.8% 9,953 11,525 15.8%
Net profit margin (%) 2.7% 4.5%   4.2% 3.8%  
No. of shares (m)         288.9  
Diluted earnings per share (Rs)*         62.0  
Price to earnings ratio (x)*         25.9  
*trailing twelve months

What has driven performance in 3QFY13?
  • Maruti Suzuki's revenues grew by an impressive 45% YoY led by healthy growth in both volumes and realisations. Volumes were up 26% YoY on account of good growth in newly launched brands such as 'Ertiga' and 'Swift Dzire.' Enhanced realisations especially in the exports markets also helped in considerably bolstering overall revenues.

  • Maruti's operating margins improved by 2.8% to 8% in 3QFY13. This was largely due to lower raw material costs and other expenses as a percentage of sales as the company continued its cost reduction measures. Raw material costs declined from 79.1% of sales in 3QFY12 to 78.4% in 3QFY13 on account of an improvement in product mix.

    Cost break-up...
    (Rs m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
    Raw materials/ purchases 61,142 87,842 43.7% 187,328 237,854 27.0%
    % sales 79.1% 78.4%   78.5% 78.5%  
    Staff cost 2,090 2,412 15.4% 5,878 7,147 21.6%
    % sales 2.7% 2.2%   2.5% 2.4%  
    Other expenditure 10,052 12,837 27.7% 28,851 35,538 23.2%
    % sales 13.0% 11.5%   12.1% 11.7%  
    Total expenditure 73,284 103,091 40.7% 222,057 280,539 26.3%
    Data Source: Equitymaster Research, company

  • Led by the superlative performance at the topline and the operating profit level, net profits surged by 144% YoY. This was despite the increase in finance costs and tax expenses.

What to expect?
At the current price of Rs 1,609, the stock trades at a multiple of 10.7 times our estimated FY15 cash flow per share and at 18.1 times our estimated earnings per share. The management expects the fourth quarter of FY13 to be a bit subdued on account of high base effect in 4QFY12 and the overall weak macro environment in the country. The cost control measures are also paying off as was the case this quarter. Despite pressures in the near term, the company's growth prospects from a longer term perspective remain strong on the back of thrust on infrastructure and rising disposable incomes. The company's strong reach, relatively affordable products and strong brand and after sales services will also work to its advantage. Having said that, since valuations are expensive, we advise investors to 'Sell' the stock at current levels.

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Dec 9, 2019 03:37 PM


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