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Maruti Suzuki: Decent start to the year - Views on News from Equitymaster
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Maruti Suzuki: Decent start to the year
Aug 7, 2014

Maruti Suzuki announced its results for the first quarter June 2014 recently. The company reported an 11% YoY and 21% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales grow by 11% YoY led by the 13% YoY increase in volumes.
  • Operating profits grow by 14% YoY as margins expand by 0.3% to 11.7% in 1QFY15. The same is due to lower other expenditure (as a percentage of sales).
  • Net profits grow faster by 21% YoY during the quarter led by higher other income and reduction in interest costs.

Financial performance: A snapshot
(Rs m) 1QFY14 1QFY15 Change
Total Vehicles Sold (No.) 266,434 299,894 12.6%
Net sales 102,373 113,696 11.1%
Expenditure 90,712 100,414 10.7%
Operating profit (EBDITA) 11,662 13,282 13.9%
EBDITA margin (%) 11.4% 11.7%  
Other income 2,043 2,965 45.1%
Finance costs 442 386 -12.8%
Depreciation 4,802 5,836 21.6%
Profit before tax 8,461 10,025 18.5%
Tax 2,145 2,403 12.0%
Profit after tax/(loss) 6,316 7,623 20.7%
Net profit margin (%) 6.2% 6.7%  
No. of shares (m)   302.1  
Diluted earnings per share (Rs)*   96.5  
Price to earnings ratio (x)*   27.5  
(* On a trailing 12-month basis)

What has driven performance in 1QFY15?
  • Maruti Suzukiís revenues during the quarter grew by 11% YoY as volumes were up by 13% YoY. Growth was largely led by the mini segment as volumes from this space were up by a robust 22% YoY. Volumes of vans also played a role in contributing to sales as they were up 27% YoY. However, the compact and the super compact segments did not do too well. While volumes of the super compact segment were up by a mere 3% YoY, those from the compact segment declined by 6.5% YoY. As a result, overall domestic volumes were up 10% YoY. Exports, however, did extremely well as volumes grew by a robust 39% YoY. Favourable exchange rate also led to higher realisations.

  • Marutiís operating margins improved by 0.3% to 11.7% in 1QFY15 on account of a fall in other expenditure (as percentage of sales). Various cost reduction initiatives such as localization and value engineering have also been helping the company put up a decent show as far as its operational performance is concerned.

    Cost break-upÖ
    (Rs m) 1QFY14 1QFY15 Change
    Raw materials/ purchases 73,705 81,843 11.0%
    % sales 72.0% 72.0%  
    Staff cost 2,951 3,535 19.8%
    % sales 2.9% 3.1%  
    Other expenditure 14,056 15,036 7.0%
    % sales 13.7% 13.2%  
    Total expenditure 90,712 100,414 10.7%

  • Net profits grew faster by 21% YoY during the quarter led by higher other income and reduction in interest costs. Depreciation charges, however, rose by 22% YoY due to the addition of Manesar-C line and Gurgaon diesel engine plant as well as change in the useful life of the assets pursuant to the new Companies Act, 2013.
What to expect?
At the current price of Rs 2,657, the stock trades at a multiple of 13.7 times our estimated FY16 cash flow per share. Maruti Suzuki intends to continue its cost rationalization and localization initiatives in FY15 as well. The company has lined up a series of new product launches which include a sedan, LCV and some refreshments over the next 12 months. 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. As far as valuations are concerned, our view is that investors do not buy the stock at current levels.

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