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Maruti: Sturdy as ever - Views on News from Equitymaster
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Maruti: Sturdy as ever
Jan 29, 2008

Performance summary
  • Led by 17% YoY growth in volumes, topline registers a 27% growth during 3QFY08.

  • Operating margins witness a slight contraction of 70 basis points during the quarter, led by huge jump in other expenses.

  • Despite contraction in operating margins, bottomline growth has come in at 24% YoY during the quarter, led by higher other income, fall in interest expenses and benign depreciation charges.

  • The company’s bottomline during the nine month period has grown by 29% YoY on the back of a similar growth in topline.

(Rs m) 3QFY07 3QFY08 Change 9mFY07 9mFY08 Change
No of units sold 172,181 201,629 17.1% 474,812 562,623 18.5%
Net sales 36,795 46,741 27.0% 102,241 131,523 28.6%
Expenditure 31,723 40,609 28.0% 87,848 113,665 29.4%
Operating profit (EBDITA) 5,072 6,133 20.9% 14,394 17,858 24.1%
EBDITA margin (%) 13.8% 13.1%   14.1% 13.6%  
Other income 1,284 1,707 32.9% 3,934 5,824 48.0%
Interest (net) 157 144 -8.8% 221 435 97.1%
Depreciation 759 867 14.3% 1,995 2,571 28.8%
Profit before tax 5,440 6,828 25.5% 16,112 20,677 28.3%
Tax 1,676 2,158 28.8% 4,978 6,345 27.5%
Profit after tax/(loss) 3,764 4,670 24.1% 11,134 14,331 28.7%
Net profit margin (%) 10.2% 10.0%   10.9% 10.9%  
No. of shares (m) 288.9 288.9   288.9 288.9  
Diluted earnings per share (Rs)*         65.1  
Price to earnings ratio* (x)         13.2  
(*trailing twelve months earnings)

What has driven performance in 3QFY08?
  • Sales growth in value terms during the quarter has come in much higher than the volume growth mainly due to a strong 70% jump in the high value ‘A3’ segment. The company’s offerings in this segment include the recently launched ‘SX4’, which is bringing in good numbers and contributing to the company’s much-improved average realisations per car figures. Among other segments, the ‘A2’ segment has continued with its consistent performance and has seen its volumes grow by 17% YoY during the quarter. Volumes from the ‘A1’ segment have continued to slide but this should not be a big worry for the company currently as they are being cannibalized by the company’s own offerings from the ‘A2’ segment such as the ‘Alto’. In the future though, the recently launched ‘Tata Nano’ may pose a significant threat. With the company looking at newer markets, exports too have received a big boost, growing by an impressive 52% YoY during the quarter.

    Sales break up..
    Segment 3QFY07 3QFY08 (% change) 9mFY07 9mFY08 (% change)
    A1 19,683 17,320 -12.0% 60,128 51,985 -13.5%
    C 21,426 23,475 9.6% 58,758 65,559 11.6%
    A2 114,461 134,293 17.3% 305,658 367,395 20.2%
    A3 6,910 11,728 69.7% 22,870 36,902 61.4%
    Total Passenger cars 162,480 186,816 15.0% 447,414 521,841 16.6%
    MUV 628 1,059 68.6% 2,316 2,792 20.6%
    Total domestic 163,108 187,875 15.2% 449,730 524,633 16.7%
    Export 9,073 13,754 51.6% 25,082 37,990 51.5%
    Total Sales 172,181 201,629 17.1% 474,812 562,623 18.5%

  • On the margins front, both staff costs as well as other expenses have exerted downward pressure on operating margins, lobbing off some 70 basis points from it. The company has however managed to keep the biggest cost component i.e. the raw material expenses under check and has thus saved the margins from falling dramatically.

    (Rs m) 3QFY07 3QFY08 Change
    Raw materials 27,662 33,717 21.9%
    % sales 75.2% 72.1%  
    Staff cost 738 968 31.0%
    % sales 2.0% 2.1%  
    Other expenses 3,323 5,924 78.3%
    % sales 9.0% 12.7%  

  • Bottomline growth at 24% YoY during the quarter has come in higher than the growth in operating profits. This could be attributed to a good 32% jump in other income and a 9% lower interest expenses. The fact that the depreciation outgo remained benign also helped matters.

What to expect?
At the current price of Rs 864, the stock is trading at a multiple of 8.7 times its FY10 cash flow per share. Given the performance in the first nine months of the current fiscal, we believe that the company will easily meet our FY08 earnings estimate of Rs 64 per share. Furthermore, despite the intensifying competition, the company is also well placed to meet our target price of Rs 1,200 per share from a FY10 perspective. We thus turn positive on the stock from a FY10 perspective. It should be remembered that we came out with a ‘SELL’ recommendation on the stock in November 2007 and it is currently trading 15% below those levels.

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