Maruti has posted a sharp spurt in sales and net profit for the first quarter ended June 2003. Net profit in 1QFY04 stood at Rs 1,231 m as compared to Rs 115 m in the same period last year. This was led by a robust growth in volume sales in 1QFY04. Unit sales increased by 47% to 104,017, which includes exports of 12,496 units (12% of unit sales). Detailed results are not yet available.
This impressive performance on account of higher sales of Maruti 800, the company's flagship model in Segment 'A'. Sale of Maruti 800 in 1QFY04 was 40,777 units (39% of total volumes and a 63% rise YoY). The company had indicated during its IPO that the financing arrangement with SBI has improved the affordability factor and thus had boosted overall volumes. Just to put things in perspective, as against the monthly sales of around 7,500 units in January 2002, Maruti 800 sales has touched 13,126 units in June 2003. Apart from Maruti 800, the company has also posted higher growth for its Segment 'B' models like Alto and Wagon R.
% of sales
% of sales
% YoY growth*
Total of the above
(*1QFY04 over 1QFY03, Source: Company website)
For April-June 2003, sales of the Alto touched 8,143 units, 46 per cent higher than April-June 2002 with 'Wagon R' also registering a 64% rise in sales. Given this impressive domestic sales, Maruti has managed to increase its overall market share from 52% to 55% in 1QFY04. Bulk of this could have been on account of higher sales in Segment 'A' where Maruti holds almost 100% market share. However, we expect the company's market share to decline in Segment 'B' for FY04 given the success of Hyundai's most recent model, 'Santro Xing'.
We expect the waiver of royalty on models like Maruti 800, Zen and Omni by Suzuki to have improved operating margins significantly in 1QFY04 (royalty towards these models accounted for 1% of sales in FY03). This combined with lower interest outgo could have benefited the company.
The stock currently trades at Rs 176 implying a P/E multiple of 10.3x annualised 1QFY04 earnings. While the company's performance in 1QFY04 is impressive, we expect the market share to come under pressure towards the second half in Segment 'B'. It remains to be seen whether the volume growth witnessed in the June quarter will sustain going forward.
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