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Maruti Suzuki: Volumes, profits rise - Views on News from Equitymaster
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Maruti Suzuki: Volumes, profits rise
Jan 28, 2015

Maruti Suzuki announced its results for the third quarter ended December 2014 recently. The company reported a 15.4% YoY and 18% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales grow by 15% YoY led by the 12% YoY increase in volumes.
  • Operating profits grow by 18% YoY as margins expand by 0.3% to 12.7% in 3QFY15. The same is due to lower raw material costs (as a percentage of sales).
  • Net profits grow in tandem with operating profits at 18% YoY.

Financial performance: A snapshot
(Rs m) 3QFY14 3QFY15 Change 9mFY14 9mFY15 Change
Total Vehicles Sold (No.) 288,151 323,911 12.4% 830,171 945,703 13.9%
Net sales 108,938 125,758 15.4% 315,992 362,492 14.7%
Expenditure 95,391 109,832 15.1% 277,569 318,076 14.6%
Operating profit (EBDITA) 13,548 15,926 17.6% 38,424 44,416 15.6%
EBDITA margin (%) 12.4% 12.7%   12.2% 12.3%  
Other income 1,170 1,290 10.3% 4,223 6,187 46.5%
Finance costs 448              300 -33.0% 1,324 1,034 -21.9%
Depreciation 5,414 6,278 16.0% 15,207 18,103 19.0%
Profit before tax 8,856 10,637 20.1% 26,115 31,467 20.5%
Tax 2,044 2,615 27.9% 6,285 7,197 14.5%
Profit after tax/(loss) 6,811 8,022 17.8% 19,830 24,270 22.4%
Net profit margin (%) 6.3% 6.4%   6.3% 6.7%  
No. of shares (m)         302.1  
Diluted earnings per share (Rs)*         106.8  
Price to earnings ratio (x)*         34.9  
(* On a trailing 12-month basis)

What has driven performance in 3QFY15?
  • Maruti Suzuki's revenues during the quarter grew by 15% YoY as volumes were up by 12% YoY. In the domestic market, growth was largely led by the super compact segment whose volumes were up 109% YoY as well as the mid-sized segment whose volumes grew 20 times. But these were not the only segments that did well. Vans also saw volumes rise by 28% YoY. That said, growth in the volumes of the mini segment was relatively tepid at 7% YoY, while those of the compact segment and multi-utility vehicles (MUVs) were down by 4% YoY and 5% YoY respectively. Given that the mini and compact segments together account for around 76% of the domestic volumes, the poor performance of both these segments resulted in the overall domestic volumes rising by only 10% YoY. However, exports did exceptionally well during the quarter as volumes were up 44% YoY and led to the overall 12% YoY growth in volumes.

  • Maruti's operating margins improved marginally by 0.3% to 12.7% in 3QFY15 on account of a fall in raw material costs (as percentage of sales). This was enough to offset the rise in both staff costs and other expenditure. Other expenditure increased on account of an exceptional item related to excise duty demand as well as higher ad spends led by new model introductions. This coupled with a fall in interest costs led to the 20% YoY growth in profit before tax (PBT).

  • In relation to this, net profit growth was relatively lower at 18% YoY on account of a higher tax outgo.
What to expect?
At the current price of Rs 3,726, the stock trades at a multiple of 13.7 times our estimated FY17 cash flow per share. Maruti Suzuki intends to continue its cost rationalization and localization initiatives in FY15 as well. Maruti's management is upbeat about the recovery in the urban markets and is looking at various ways to capitalise on this. The company has lined up a series of new product launches which include a sedan, LCV and a compact SUV over the next two fiscals. From a long term perspective, the management remains confident of growth prospects led by thrust on infrastructure and rising disposable incomes. As far as valuations are concerned, our view is that investors do not buy the stock at current levels.

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