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Maruti Suzuki: Robust start to the year - Views on News from Equitymaster
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Maruti Suzuki: Robust start to the year
Aug 7, 2015

Maruti Suzuki announced its results for the first quarter ended June 2015 recently. The company reported a 17.5% YoY and 56.5% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales grow by 17.5% YoY led by the 14% YoY increase in volumes.
  • Operating profits grow by an impressive 58% YoY as margins expand by 4.2% to 16.3% in 1QFY16. The same is due to lower raw material costs and other expenditure (as a percentage of sales).
  • In tandem with the growth in operating profits, net profits grow at a healthy pace of 56.5% YoY.

Financial performance: A snapshot
(Rs m) 1QFY15 1QFY16 Change
Total Vehicles Sold (No.) 299,894 341,329 13.8%
Net sales 114,281 134,249 17.5%
Expenditure 100,414 112,358 11.9%
Operating profit (EBDITA) 13,867 21,891 57.9%
EBDITA margin (%) 12.1% 16.3%  
Other income 2,381 1,720 -27.7%
Finance costs 386 190 -50.6%
Depreciation 5,836 6,716 15.1%
Profit before tax 10,025 16,705 66.6%
Tax 2,403 4,776 98.8%
Profit after tax/(loss) 7,623 11,929 56.5%
Net profit margin (%) 6.7% 8.9%  
No. of shares (m)   302.1  
Diluted earnings per share (Rs)*   137.1  
Price to earnings ratio (x)*   32.4  
(* On a trailing 12-month basis)

What has driven performance in 1QFY16?
  • Maruti Suzuki's revenues during the quarter grew by a decent 17.5% YoY with volumes up by 14% YoY. In the domestic market, the 13% YoY volume growth was largely led by the super compact segment whose volumes more than doubled as well as the mid-sized segment whose volumes grew from 519 units in 1QFY15 to 13,374 units in 1QFY16. The new launches notably Celerio and Ciaz were major contributors to growth of these segments. But these were not the only segments that did well. Vans also saw volumes rise by 18% YoY. That said, volumes in the mini segment grew by a tepid 2% YoY, while those of the compact segment and multi-utility vehicles (MUVs) grew by 8% YoY and 1% YoY respectively. It must be noted that the mini and compact segments together account for around 77% of the domestic volumes. Exports did quite well during the quarter as volumes were up 22% YoY.

  • Maruti's operating margins improved by 4.2% to 16.3% in 1QFY16 on account of a fall in raw material costs as well as other expenditure (as percentage of sales). Fall in raw material costs was attributed to a favourable exchange rate as well as initiatives to reduce material costs. Other expenditure was lower on account of lower advertisement costs.

  • In tandem with the growth in operating profits, net profits grew at a healthy pace of 56.5% YoY.
What to expect?

At the current price of Rs 4,446, the stock trades at a multiple of 16.4 times our estimated FY17 cash flow per share. Going forward, Maruti aims to reach sales volume target of 2 m units per annum over the next five years and in this regard plans to launch 20 new models in the same period. The company has also outlined a capex of Rs 40 bn in FY16, which will be towards new product launches, R&D, marketing expenses and maintenance. As far as valuations are concerned, our view is that investors do not buy the stock at current levels.

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