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Maruti: Volumes take a hit
Jul 27, 2011

Maruti Suzuki announced the first quarter results of financial year 2011-2012 (1QFY12). The company reported a 3% YoY increase in revenues, while profits grew by 18% YoY. Here is our analysis of the results.

Performance summary
  • Net sales rise by 3% YoY in 1QFY12 on the back of lower volume off take.
  • Operating profits remain stable at 9.5% during the quarter.
  • Net profit growth is healthy at 18% YoY led by higher other income and marginal rise in depreciation charges.

Financial snapshot
(Rs m) 1QFY11 1QFY12 Change
Units sold 283,324 281,526 -0.6%
Net sales 83,092 85,293 2.6%
Expenditure 75,169 77,149 2.6%
Operating profit (EBDITA) 7,923 8,144 2.8%
EBDITA margin (%) 9.5% 9.5%  
Other income 1,004 1,801 79.3%
Interest (net) 80 58 -27.9%
Depreciation 2,417 2,425 0.3%
Profit before tax 6,430 7,463 16.1%
Tax 1,777 1,970 10.9%
Profit after tax/(loss) 4,654 5,492 18.0%
Net profit margin (%) 5.6% 6.4%  
No. of shares (m) 288.9 288.9  
Diluted earnings per share (Rs)*   82.1  
Price to earnings ratio (x)*   14.4  
* On a trailing 12 months basis

What has driven performance in 1QFY12?
  • Maruti Suzuki (Maruti) reported a mere 3% YoY increase in net sales during the quarter. Overall volumes dipped by 1% YoY which was largely due to the 24% YoY fall in export volume sales. Although domestic volumes grew by 3% YoY, the performance was still poor as the company was impacted by dual issues of rising fuel prices and interest rates which acted as a dampener on demand. Growth in domestic sales was largely led by the company's C segment, which reported a robust volume growth of 22% YoY. While the A2 segment was flat, the A3 segment grew by a tepid 6% YoY.

  • Maruti's operating margins remained stable at 9.5% this quarter. Increase in raw material and staff costs (as a percentage of sales) was offset by the drop in other expenditure. The rise in raw material costs from 77.1% of sales in 1QFY11 to 78.5% in 1QFY12 was on account of firm trend in prices of steel, aluminium and rubber. Having said that, the management expects the prices of these inputs to stabilize over the next few quarters.
  • Cost break-up
    (Rs m) 1QFY11 1QFY12 Change
    Raw materials 64,102 66,917 4.4%
    % sales 77.1% 78.5%  
    Staff cost 1,610 1,794 11.4%
    % sales 1.9% 2.1%  
    Other expenditure 9,457 8,438 -10.8%
    % sales 11.4% 9.9%  
    Total 75,169 77,149  

  • Maruti's net profits grew by 18% YoY during 1QFY12. This growth was faster than the 3% YoY growth in operating profits on account of a considerable rise in other income and benign increase in depreciation charges.

What to expect?
At the current price of Rs 1,183, the stock trades at a multiple of 6.8 times our estimated FY14 cash flow per share and at 10 times our estimated earnings per share. Going forward, the robust growth in the Indian economy, thrust on infrastructure and rising disposable incomes is expected to spur the growth in Maruti's 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. That said, pressures persist on account of rising input costs and higher interest rates which are likely to hinder demand. However, we believe that these are near term pressures and the company stands to benefit from a strong growth in the Indian economy in the longer term. We maintain our positive view on the stock from a long term perspective.

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