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Maruti Suzuki: A very challenging FY14 - Views on News from Equitymaster
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Maruti Suzuki: A very challenging FY14
May 8, 2014

Maruti Suzuki announced its results for the fourth quarter and full year ended March 2014 recently. The company reported a 9% YoY and 36% YoY fall in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales fall by 9% YoY led by the 6% YoY decline in volumes.
  • Operating profits fall by 38% YoY as margins contract by 4.7% to 10.3% in 4QFY14. The same is due to substantially higher raw material costs (as a percentage of sales).
  • Led by the decline in operating profits, net profits too decline by 36% YoY during the quarter. For FY14, sales growth is flat, while net profits grow by 16% YoY.
  • The Board declares a dividend of Rs 12 per share (dividend yield of 0.6%).

Financial performance: A snapshot
(Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
Total Vehicles Sold (No.) 343,709 324,870 -5.5% 1,171,434 1,155,041 -1.4%
Net sales 133,040 121,014 -9.0% 435,879 437,006 0.3%
Expenditure 113,044 108,539 -4.0% 393,583 386,047 -1.9%
Operating profit (EBDITA) 19,996 12,475 -37.6% 42,297 50,959 20.5%
EBDITA margin (%) 15.0% 10.3%   9.7% 11.7%  
Other income 3,990 4,066 1.9% 8,124 8,229 1.3%
Finance costs 726 434 -40.2% 1,898 1,759 -7.4%
Depreciation 8,159 5,637 -30.9% 18,612 20,844 12.0%
Profit before tax 15,101 10,470 -30.7% 29,911 36,586 22.3%
Tax 2,705 2,470 -8.7% 5,989 8,755 46.2%
Profit after tax/(loss) 12,396 8,000 -35.5% 23,921 27,831 16.3%
Net profit margin (%) 9.3% 6.6%   5.5% 6.4%  
No. of shares (m)         302.1  
Diluted earnings per share (Rs)*         92.1  
Price to earnings ratio (x)*         20.6  
(* On a trailing 12-month basis)

What has driven performance in FY14?
  • FY14 was an extremely tough year for the Indian auto industry. Low income growth and high inflation impacted consumer sentiments and discouraged them from spending on discretionary products like automobiles. Maruti Suzuki's revenues during the year remained flat as volumes fell by 1% YoY. In the domestic market, volume sales remained flat. Export volumes were impacted during the year on account of weak global economic growth, political unrest and regulation changes in some of the major markets. While sales to Europe improved slightly, sales to other markets declined by 21% YoY. Overall, export volumes were down 16% YoY.

  • Maruti's operating margins improved by 2% to 11.7% in FY14 on account of a fall in raw material costs (as percentage of sales). Overall, during the year, various cost reduction initiatives such as localization and value engineering helped the company put up a strong show as far as its operational performance is concerned. A favourable exchange rate and commodity prices staying stable also helped matters. During 4QFY14 however, margins shrunk by 4.7% largely on account of lower volumes, higher sales promotional expenses and stock compensation to dealers owing to the reduction in excise duty.

    Cost break-up...
    (Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
    Raw materials/ purchases 87,298 88,783 1.7% 325,151 313,145 -3.7%
    % sales 65.6% 73.4%   74.6% 71.7%  
    Staff cost 3,875 4,010 3.5% 10,696 13,681 27.9%
    % sales 2.9% 3.3%   2.5% 3.1%  
    Other expenditure 21,872 15,746 -28.0% 57,736 59,221 2.6%
    % sales 16.4% 13.0%   13.2% 13.6%  
    Total expenditure 113,044 108,539 -4.0% 393,583 386,047 -1.9%

  • Led by the strong performance at the operating profit level, net profits grew by 16% YoY during the year despite the rise in tax expenses.
What to expect?
At the current price of Rs 1,900, the stock trades at a multiple of 9.9 times our estimated FY16 cash flow per share. FY14 has been a very challenging year and the management maintains that market conditions continue to remain tough. The company intends to continue its cost rationalization and localization initiatives in FY15 as well. 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. Post the declaration of the full year results, we will be updating our estimates for the company especially for FY17. As far as valuations are concerned, our view is that investors do not buy the stock at current levels.

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