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Maruti: Exports drive growth - Views on News from Equitymaster

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Maruti: Exports drive growth

Jul 23, 2009

Performance summary
  • Driven by a 135% YoY growth in export volume sales, Maruti’s topline increases by 34% YoY. Domestic volume sales are higher by 10% YoY.
  • On the operating margin front, the company sees a marginal improvement of 0.5% YoY.
  • The bottomline is up 25% YoY for 1QFY10. Lower interest costs aid the increase.


Financial picture
Rs m) 1QFY09 1QFY10 Change
Units sold 192,584 226,729 17.7%
Net sales 48,602 64,930 33.6%
Expenditure 42,899 56,998 32.9%
Operating profit (EBDITA) 5,703 7,932 39.1%
EBDITA margin (%) 11.7% 12.2%  
Other income 2,222 2,165 -2.5%
Interest (net) 168 63 -62.5%
Depreciation 1,661 1,961 18.1%
Profit before tax 6,095 8,073 32.4%
Tax 1,437 2,238 55.7%
Profit after tax/(loss) 4,659 5,835 25.3%
Net profit margin (%) 9.6% 9.0%  
No. of shares (m) 288.9 288.9  
Diluted earnings per share (Rs)   46.3  
Price to earnings ratio (x)   26.8  
*12 months trailing earning

What has driven performance in 1QFY10?
  • Maruti witnessed a topline growth of 34% YoY during 1QFY10. This was led by a stellar performance on the exports front which saw a volume growth of 135% YoY. A-star, which the company started exporting since Jan 2009 is witnessing strong demand, with sales touching the 45,000 mark. Also, entry into new regions coupled with scrappage incentives offered by Europe led to the robust increase in exports sales. The exports now contribute 13% to the total sales, up from 6.5% witnessed last year.

    Sales break-up…
    Domestic 1QFY09 1QFY10 % change
    A1 16,649 7,119 -57.2%
    C 20,761 22,233 7.1%
    A2 125,427 146,733 17.0%
    A3 15,940 19,947 25.1%
    Total passenger cars 178,777 196,032 9.7%
    MUV 1,316 1,383 5.1%
    Total domestic 180,093 197,415 9.6%
    Exports 12,491 29,314 134.7%
    Grand total 192,584 226,729 17.7%

  • The domestic volumes grew by 10% YoY. The company has been witnessing a recovery since 4QFY09 in its volume sales aided by the fiscal stimulus measures undertaken by the government as well as lowering of interest rates. During the quarter, Maruti saw a 17% YoY growth in the A2 segment and 25% YoY increased in the A3 segment primarily driven by new launches.

    Cost break-up…
    (Rs m) 1QFY09 1QFY10 Change
    Raw materials 36,901 49,551 34.3%
    % sales 75.9% 76.3%  
    Staff cost 1,112 1,336 20.1%
    % sales 2.3% 2.1%  
    Other expenditure 4,887 6,112 25.1%
    % sales 10.1% 9.4%  

  • On the operating margin front, the company saw a marginal improvement of 0.5% YoY. While raw material costs saw an increase, staff and other expenses decreased as a percent of sales. Further, better sales mix coupled with favourable foreign exchange realizations also aided the growth. The company has done marginally higher than our estimates.

  • The net profits reported a growth of 25% YoY during 1QFY10. A 39% YoY growth in operating profits coupled with lower interest costs (down 63% YoY) led to the higher profits. However, higher tax outgo restricted the growth. It increased from 24% to 28% during the quarter.

What to expect?
At Rs 1,263, the stock is trading at a price to earnings multiple of 12.1 times our FY12 estimates. Maruti’s strategy to considerably de-risk its model and reduce its dependence on the Indian market is paying off. Strong growth in exports has aided its performance. While the results are better than our estimates, the current run up in the stock price has made it an expensive bet.

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