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Maruti: Some respite in Q4

Apr 30, 2012

Maruti Suzuki announced the fourth quarter results of financial year 2011-2012 (4QFY12). The company reported a 17% YoY growth in revenues, while profits fell by 3% YoY. Here is our analysis of the results.

Performance summary
  • Net sales grow by 17% YoY in 4QFY12 on the back of higher realisations as volumes grow by 5% YoY.
  • Operating margins fall by 2.8% to 7.3% during the quarter on account of higher raw material and staff costs (as percentage of sales).
  • Despite the 15% YoY decline in operating profits, net profits fall at a lower rate of 3% on account of a surge in other income.

Financial snapshot
(Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
Units sold 343,340 360,334 4.9% 1,132,739 1,006,316 -11.2%
Net sales 100,054 117,270 17.2% 366,184 355,871 -2.8%
Expenditure 89,921 108,685 20.9% 329,799 330,742 0.3%
Operating profit (EBDITA) 10,133 8,585 -15.3% 36,385 25,129 -30.9%
EBDITA margin (%) 10.1% 7.3%   9.9% 7.1%  
Other income 1,163 2,969 155.2% 5,088 8,269 62.5%
Interest (net) 64 208 226.4% 250 552 120.8%
Depreciation 2,967 3,306 11.4% 10,135 11,384 12.3%
Profit before tax 8,266 8,040 -2.7% 31,088 21,462 -31.0%
Tax 1,667 1,642 -1.5% 8,201 5,111 -37.7%
Profit after tax/(loss) 6,599 6,398 -3.0% 22,886 16,351 -28.6%
Net profit margin (%) 6.6% 5.5%   6.2% 4.6%  
No. of shares (m)       288.9 288.9  
Diluted earnings per share (Rs)*         56.6  
Price to earnings ratio (x)*         24.2  
(*On a trailing 12-month basis)

What has driven performance in FY12?
  • Maruti Suzukiís (Maruti) sales grew by 17% YoY during the quarter on account of higher realisations as overall volumes grew by 5% YoY. For the full year, however, total sales growth declined by 3% YoY on account of the 11% YoY decline in volumes. The prime reason for this fall was attributed to the labour troubles at the companyís plant at Manesar which severely hampered production. Besides this, the company was also impacted by sluggish market conditions caused by higher fuel prices and interest rates which acted as a dampener on demand. Thus, while the domestic sales volumes dipped by 11% YoY, exports were not spared either and fell by 8% YoY.
  • Marutiís operating margins fell by 2.8% to 7.1% during the year. Loss in production at the Manesar plant was one of the reasons for the fall in operating profits. Not just that, because of the tepid environment in the domestic market, the company spent more on advertising and sales promotion and doling out higher discounts, which also put pressure on margins. The sharp depreciation of the rupee also contributed to the margin contraction as cost of imports rose.

    Cost break-up...
    (Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
    Raw materials 77,603 93,328 20.3% 283,382 280,656 -1.0%
    % sales 77.6% 79.6%   77.4% 78.9%  
    Staff cost 1,534 2,560 66.9% 7,036 8,438 19.9%
    % sales 1.5% 2.2%   1.9% 2.4%  
    Other expenditure 10,784 12,797 18.7% 39,382 41,648 5.8%
    % sales 10.8% 10.9%   10.8% 11.7%  
    Total 89,921 108,685   329,799 330,742  

  • Despite the 15% YoY decline in operating profits, net profits fall at a lower rate of 3% on account of a surge in other income. However, for the full year, net profits declined by 29% YoY on the back of a 31% YoY fall in operating profits.

What to expect?
At the current price of Rs 1,372, the stock trades at a multiple of 9.7 times our estimated FY14 cash flow per share and at 15.5 times our estimated earnings per share. The companyís performance in FY12 was impacted by the slowdown in the overall auto industry and labour troubles at Manesar which severely impacted production and thereby growth. With the price differential between petrol and diesel widening on account of a hike in petrol prices, demand for diesel vehicles surged. Thus, the company saw a healthy demand for diesel vehicles, while petrol vehicles saw a decline. Because of the surge in demand for diesel vehicles, the company faced some capacity constraints which it has been addressing. The company is also focusing on various initiatives to ramp up the sales of its petrol variants.

From a longer term perspective the robust growth in the Indian economy, thrust on infrastructure and rising disposable incomes is expected to spur the growth in Marutiís sales volumes. The company also stands to benefit on the back of its strong reach, relatively affordable products and strong brand and after sales services. However, at the current valuations, the stock does not leave much upside on the table for investors.

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