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Maruti: Costs make it more bumpy - Views on News from Equitymaster

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Maruti: Costs make it more bumpy
Jan 30, 2009

Performance summary
  • Topline registers a decline of 3% YoY during the quarter as volumes fall 14% YoY.
  • Operating profits slump 58% YoY as margins tumble 830 basis points on the back of rise in raw materials costs and other expenses.
  • Net profits fall 54% YoY, led mainly by poor operating performance.
  • Bottomline for the nine month period falls 32% YoY on the back of 7% growth in topline.


Standalone performance
(Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
No of units sold 201,629 173,494 -14.0% 562,623 555,529 -1.3%
Net sales 47,594 46,258 -2.8% 134,327 144,196 7.3%
Expenditure 40,609 43,290 6.6% 113,856 130,369 14.5%
Operating profit (EBDITA) 6,986 2,968 -57.5% 20,471 13,828 -32.5%
EBDITA margin (%) 14.7% 6.4%   15.2% 9.6%  
Other income 854 1,777 108.1% 3,212 4,959 54.4%
Interest (net) 144 45 -68.6% 435 421 -3.2%
Depreciation 867 1,775 104.6% 2,571 5,094 98.2%
Profit before tax 6,828 2,925 -57.2% 20,677 13,272 -35.8%
Tax 2,158 789 -63.4% 6,345 3,516 -44.6%
Profit after tax/(loss) 4,670 2,136 -54.3% 14,331 9,755 -31.9%
Net profit margin (%) 9.8% 4.6%   10.7% 6.8%  
No. of shares (m) 288.9 288.9   288.9 288.9  
Diluted earnings per share (Rs)*         44.1  
Price to earnings ratio* (x)         12.5  
(*trailing twelve months earnings)

What has driven performance in 3QFY09?
  • The occurrence of both, economic slowdown as well as difficult credit environment simultaneously, has led to a 14% YoY decline in volumes for India’s largest car maker during the quarter. As seen from the table below, robust performance by the company’s A3 segment saved the company from further blushes. Infact, it is this segment that also played a big part in restricting the fall in topline in value terms to just 3% despite 14% decline in total volumes. Going forward, cut in excise duties by the government, which the company has passed on to consumers is likely to provide some sort of support to volumes. Moreover, its latest launch ‘A Star’ is also likely to make a contribution to the overall sales.

    Sales break up..
    Segment 3QFY08 3QFY09 (% change) 9mFY08 9mFY09 (% change)
    A1 17,320 8,521 -50.8% 51,985 37,307 -28.2%
    C 23,475 15,557 -33.7% 65,559 56,527 -13.8%
    A2 134,293 115,241 -14.2% 367,395 358,751 -2.4%
    A3 11,728 17,911 52.7% 36,902 52,700 42.8%
    Total Passenger cars 186,816 157,230 -15.8% 521,841 505,285 -3.2%
    MUV 1,059 1,630 53.9% 2,792 5,374 92.5%
    Total domestic 187,875 158,860 -15.4% 524,633 510,659 -2.7%
    Export 13,754 14,634 6.4% 37,990 44,870 18.1%
    Total Sales 201,629 173,494 -14.0% 562,623 555,529 -1.3%

  • Operating margins continued to spiral, suffering an erosion of as much as 8.3% YoY during the quarter. All the major cost heads increased as percentage of sales, with raw material costs exerting the maximum pressure. Rise in other expenses seem to be mainly due to greater marketing as well as distribution effort and higher royalty payments. Furthermore, since the company imports a substantial portion of its raw materials, adverse currency movements have also impacted margins to some extent.

    The costs side
    (Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
    Raw materials 35,763 36,617 2.4% 100,053 111,618 11.6%
    % sales 75.1% 79.2%   74.5% 77.4%  
    Staff cost 968 1,104 14.1% 2,681 3,380 26.1%
    % sales 2.0% 2.4%   2.0% 2.3%  
    Other expenses 3,879 5,569 43.6% 11,121 15,371 38.2%
    % sales 8.1% 12.0%   8.3% 10.7%  

  • Besides lower margins, higher depreciation have further impacted the bottomline, resulting in a 54% YoY decline during the quarter.

What to expect?
At the current price of Rs 543, the stock trades at a multiple of 5.5 times our estimated FY11 cash flow per share. If the performance for the first nine months is anything to go by, the company is on track to meeting our FY09 earnings estimates. As such, we do not feel the need to have a relook at our projections. We maintain our positive view on the stock from a FY11 perspective.

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