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Maruti: Detail is in the bottomline - Views on News from Equitymaster

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Maruti: Detail is in the bottomline
Apr 24, 2009

Performance summary
  • Sales grow by 17% YoY during the fiscal on the back of a 4% jump in volumes
  • Operating margins fall by 3.3% for the fiscal as higher expenses take toll. Operating profits come in lower by 16% YoY
  • Bottomline for the full year suffers a 30% YoY fall as lower other income and higher depreciation compound the company’s woes further
  • Net profits for the fourth quarter come in lower by 18% YoY on the back of an impressive 35% YoY growth in topline


(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Units sold 202,219 236,638 17.0% 764,842 792,167 3.6%
Net sales 47,629 64,329 35.1% 178,603 208,525 16.8%
Expenditure 43,073 59,836 38.9% 156,929 190,205 21.2%
Operating profit (EBDITA) 4,556 4,493 -1.4% 21,674 18,321 -15.5%
EBDITA margin (%) 9.6% 7.0%   12.1% 8.8%  
Other income 3,070 1,054 -65.7% 9,635 6,013 -37.6%
Interest (net) 161 89 -45.0% 596 510 -14.5%
Depreciation 3,111 1,971 -36.6% 5,682 7,065 24.4%
Profit before tax 4,354 3,487 -19.9% 25,031 16,759 -33.0%
Tax 1,377 1,056 -23.3% 7,722 4,571 -40.8%
Profit after tax/(loss) 2,977 2,431 -18.3% 17,308 12,187 -29.6%
Net profit margin (%) 6.2% 3.8%   9.7% 5.8%  
No. of shares (m) 288.9 288.9   288.9 288.9  
Diluted earnings per share (Rs)       59.9 42.2  
Price to earnings ratio (x)         18.9  

What has driven performance in FY09?
  • After slipping by 14% during the third quarter, Maruti’s volumes witnessed a sharp turnaround during the fourth quarter, enabling it to post a near 4% volume growth for the full year. Recovery in the fourth quarter was aided by the fiscal stimulus measures undertaken by the government as well as lowering of interest rates by some key banks. Growth in the company’s ‘A3’ segment offerings, which managed to grow by 54% for the full year, stood out rather prominently. It also helped give a big boost to the company’s topline in value terms, on account of significantly higher realisations enjoyed by cars from this segment. At 32% YoY, growth in exports was also impressive.

    sales break up
    Domestic Models 4QFY08 4QFY09 % change FY08 FY09 % change
    A1 M-800 17,568 12,076 -31.3% 69,553 49,383 -29.0%
    C Omni, Versa 24,170 21,421 -11.4% 89,729 77,948 -13.1%
    A2 Alto, Wagon -R 131,885 152,645 15.7% 499,280 511,396 2.4%
    A3 SX4, Dzire 12,433 23,228 86.8% 49,335 75,928 53.9%
    Total passenger cars   186,056 209,370 12.5% 707,897 714,655 1.0%
    MUV Gypsy 1,129 2,115 87.3% 3,921 7,489 91.0%
    Total domestic   187,185 211,485 13.0% 711,818 722,144 1.5%
    Exports   15,034 25,153 67.3% 53,024 70,023 32.1%
    Grand total   202,219 236,638 17.0% 764,842 792,167 3.6%

  • On the costs front, severe cost pressures led to the company’s operating margins witnessing a contraction of 3.3% during the year. All the cost heads have grown at a faster rate as compared to sales, thus indicating the kind of pressure the company was under. While the company did expect benefits from lower raw materials to kick in from 4QFY09 onwards, the fact that it imports a sizeable amount of its raw materials would have worked against it on account of the depreciation of the rupee against major international currencies. Furthermore, higher royalty charges to its parent Suzuki towards introduction of new models have also negatively impacted its margins.

    Cost break up
    (Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
    Raw materials 36,415 50,809 39.5% 136,468 162,427 19.0%
    % sales 76.5% 79.0%   76.4% 77.9%  
    Staff cost 880 1,331 51.2% 3,562 4,711 32.3%
    % sales 1.8% 2.1%   2.0% 2.3%  
    Other expenditure 5,778 7,696 33.2% 16,900 23,067 36.5%
    % sales 12.1% 12.0%   9.5% 11.1%  

  • Apart from lower operating profits, higher depreciation charges and lower other income have further impacted the performance of the company, leading to a 30% decline in the bottomline over FY08. Infact, had it not been for the 37% decline in depreciation during the fourth quarter, fall in bottomline could have been even worse. It is important to add that for the first nine months, depreciation charges for the company had actually jumped by 98% YoY. Infact, except for the fourth quarter, depreciation charges have jumped significantly during all the other quarters. Hence, the fall in the fourth quarter has come as a surprise.

What to expect?
At the current price of Rs 798, the stock trades at a cash flow multiple of 8.1x its expected FY11 cash flow per share. The company’s earnings for the full year have come in 11% below our estimates and this may prompt us to revise our estimates downwards for our future projections. We will soon come out with an updated report on the company.

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