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Maruti Suzuki: A strong third quarter - Views on News from Equitymaster
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Maruti Suzuki: A strong third quarter
Feb 4, 2016

Maruti Suzuki announced its results for the third quarter ended December 2015 recently. The company reported a 20% YoY and 27% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales grow by 20% YoY led by the 15.5% YoY increase in volumes.
  • Operating profits grow by an impressive 34% YoY as margins expand by 1.6% to 14.4% in 3QFY16. The same is due to lower raw material costs (as a percentage of sales).
  • Net profits grow at a slightly lower rate of 27% YoY on account of higher tax expenses.

Financial performance: A snapshot

(Rs m) 3QFY15 3QFY16 Change 9mFY15 9mFY16 Change
Total Vehicles Sold (No.) 323,911 374,182 15.5% 945,703 1,068,846 13.0%
Net sales 126,025 150,819 19.7% 363,458 424,406 16.8%
Expenditure 109,832 129,118 17.6% 318,075 358,121 12.6%
Operating profit (EBDITA) 16,193 21,701 34.0% 45,383 66,285 46.1%
EBDITA margin (%) 12.8% 14.4%   12.5% 15.6%  
Other income 1,022 315 -69.2% 5,221 3,407 -34.7%
Finance costs 300 244 -18.7% 1,034 612 -40.8%
Depreciation 6,278 7,221 15.0% 18,103 20,631 14.0%
Profit before tax 10,637 14,551 36.8% 31,467 48,449 54.0%
Tax 2,615 4,358 66.7% 7,197 14,071 95.5%
Profit after tax/(loss) 8,022 10,193 27.1% 24,270 34,378 41.6%
Net profit margin (%) 6.4% 6.8%   6.7% 8.1%  
No. of shares (m)       302.1 302.1
Diluted earnings per share (Rs)*         156.3  
Price to earnings ratio (x)*         25.2  

*Based on trailing 12-months earnings

What has driven performance in 3QFY16?

  • Maruti Suzuki's revenues during the quarter grew by a healthy 20% YoY with volumes up by 15.5% YoY led by the festive season and newer models. In the domestic market, the 16% YoY volume growth was largely led by the compact and super compact segments as volumes grew 23% YoY and 105% YoY respectively. But these were not the only segments that did well. Utility vehicles (UVs) grew by a healthy 58% YoY, while vans logged in volume growth of 11% YoY. Exports were subdued during the quarter as volumes were up 9% YoY. Volumes were impacted in Sri Lanka on account of the hike in duty structure.
  • Maruti's operating margins improved by 1.6% to 14.4% in 3QFY16 on account of a fall in raw material costs and other expenditure (as percentage of sales). Fall in raw material costs was attributed to softening commodity prices as well as initiatives to reduce material costs. Staff costs were higher on account of provisions made based on the new Bonus Act.
  • Net profits grew at a slightly lower rate of 27% YoY on account of higher tax expenses. This is despite the reduction in interest costs.

What to expect?

At the current price of Rs 3,936, the stock trades at a multiple of 12.3 times our estimated FY18 cash flow per share. Going forward, Maruti Suzuki aims to reach sales volume target of 2 m units over the next five years and in this regard plans to launch 20 new models in the same period. The company has also outlined a capex of Rs 30 bn in FY16, which will be towards new product launches, R&D, marketing expenses and maintenance. As far as the Gujarat plant is concerned, work is progressing as per schedule and the first phase (capacity of 250,000 units) is expected to commence by March 2017. As far as valuations are concerned, our view is that investors do not buy the stock at current levels.

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