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Maruti Suzuki: Not a bad end to the year - Views on News from Equitymaster

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Maruti Suzuki: Not a bad end to the year
Apr 26, 2013

Maruti Suzuki announced its results for the quarter ended March 2013 recently. The company reported a 13% YoY and 94% YoY growth in revenues and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales grow by an impressive 13% YoY during the quarter led by good growth in the volumes of 'Dzire', 'Ertiga' and enhanced export realisations.
  • Operating profits rise by a robust 133% YoY as margins improve by 7.7% YoY to 15%. The same is due to lower raw material costs (as a percentage of sales).
  • Net profits surge by 94% YoY led by the superlative performance at the operating level although some impact is felt of higher finance costs and depreciation charges.
  • The Board of Directors have recommended a dividend of Rs 8 per share (dividend yield is 0.5%).

Financial performance: A snapshot
(Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
Total Vehicles Sold (No.) 360,334 343,709 -4.6% 1,133,695 1,171,434 3.3%
Net sales 117,270 133,040 13.4% 355,871 435,879 22.5%
Expenditure 108,685 113,044 4.0% 330,742 393,583 19.0%
Operating profit (EBDITA) 8,585 19,996 132.9% 25,129 42,297 68.3%
EBDITA margin (%) 7.3% 15.0%   7.1% 9.7%  
Other income 2,969 3,990 34.4% 8,269 8,124 -1.6%
Finance costs 208 726 249.4% 552 1,898 243.8%
Depreciation 3,306 8,159 146.8% 11,384 18,612 63.5%
Profit before tax 8,040 15,101 87.8% 21,462 29,911 39.4%
Tax 1,642 2,705 64.8% 5,111 5,989 17.1%
Profit after tax/(loss) 6,398 12,396 93.7% 16,351 23,921 46.4%
Net profit margin (%) 5.5% 9.3%   4.6% 5.5%  
No. of shares (m)         302.1  
Diluted earnings per share (Rs)*          79.2  
Price to earnings ratio (x)*          20.9  
* On a trailing 12-month basis

What has driven performance in FY13?
  • Maruti Suzuki's revenues during the year grew by an impressive 22.5% YoY led by healthy growth in realisations as volume growth was tepid at 3% YoY. While the small car segment was adversely impacted (volumes were down around 13% YoY) by the economic slowdown and firm interest rates, strong growth in the models such as Swift, Dzire and Ertiga helped cushion growth. Enhanced realisations especially in the exports markets also helped in bolstering overall revenues. Given the surge in demand for diesel vehicles, the company merged Suzuki Powertrain with itself during the year. Infact the share of diesel vehicles (as a percentage of total volumes) increased to 58% in FY13 as against 48% in FY12. During the fourth quarter, net sales were up 13% YoY led by realisations as volumes declined by 5% YoY.
  • Maruti's operating margins improved by 2.6% to 9.7% in FY13. This was largely due to lower raw material costs as a percentage of sales as the company continued its cost reduction and localization efforts. A favourable exchange rate also helped matters. Raw material costs declined from 78.9% of sales in FY12 to 74.6% in FY13. As a result, operating profits grew by 68% YoY during the year.

  • Cost break-up...
    (Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
    Raw materials/ purchases 93,328  87,295 -6.5%  280,656  325,149 15.9%
    % sales 79.6% 65.6%   78.9% 74.6%  
    Staff cost 2,458 3,875 57.6% 8,012  10,696 33.5%
    % sales 2.1% 2.9%   2.3% 2.5%  
    Other expenditure 12,899  21,874 69.6%  42,073  57,738 37.2%
    % sales 11.0% 16.4%   11.8% 13.2%  
    Total expenditure 108,685 113,044 4.0% 330,742 393,583 19.0%
    Data Source: Equitymaster Research, company

  • Led by the healthy performance at the topline and the operating profit level, net profits surged by 46% YoY. Having said that, growth in the bottomline was lower than that in operating profits on account of higher finance costs and depreciation charges.

What to expect?

At the current price of Rs 1,658, the stock trades at a multiple of 10.5 times our estimated FY15 cash flow per share. FY13 was a disappointing year for the Indian auto industry as a slowdown in GDP, firm interest rates and hike in fuel prices impacted demand and led to either a tepid growth or decline in auto volumes. What is more, there is the possibility that the environment could remain subdued in the first few months of FY14 as well although growth should pick up subsequently. Despite pressures in the near term, the management remains confident of growth prospects from a longer term perspective on the back of thrust on infrastructure and rising disposable incomes. The company's strong reach, relatively affordable products and strong brand and after sales services will also work to its advantage. Having said that, the stock price has run up and since valuations are expensive, we advise investors to 'Sell' the stock at current levels.

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