Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 Edition) on picking money-making stocks.
This is an entirely free service. No payments are to be made.(Rs m) | 2QFY06 | 2QFY07 | Change | 1HFY06 | 1HFY07 | Change |
No of units sold | 140,543 | 157,683 | 12.2% | 262,409 | 302,631 | 15.3% |
Net sales | 30,378 | 34,192 | 12.6% | 56,632 | 65,447 | 15.6% |
Expenditure | 26,880 | 29,436 | 9.5% | 49,886 | 56,124 | 12.5% |
Operating profit (EBDITA) | 3,498 | 4,756 | 36.0% | 6,746 | 9,322 | 38.2% |
EBDITA margin (%) | 11.5% | 13.9% | 11.9% | 14.2% | ||
Other income | 1,091 | 1,217 | 11.6% | 2,073 | 2,650 | 27.8% |
Interest (net) | 61 | 31 | -49.8% | 153 | 63 | -58.5% |
Depreciation | 665 | 596 | -10.4% | 1,448 | 1,237 | -14.6% |
Profit before tax | 3,863 | 5,346 | 38.4% | 7,219 | 10,672 | 47.8% |
Extraordinary income/(expense) | - | - | - | - | - | - |
Tax | 1,236 | 1,672 | 35.3% | 2,327 | 3,302 | 41.9% |
Profit after tax/(loss) | 2,627 | 3,674 | 39.9% | 4,891 | 7,370 | 50.7% |
Net profit margin (%) | 8.6% | 10.7% | 8.6% | 11.3% | ||
No. of shares (m) | 288.9 | 288.9 | 288.9 | 288.9 | ||
Diluted earnings per share (Rs)* | 49.7 | |||||
Price to earnings ratio (x) | 19.1 |
A contrarian at work: While all the two-wheeler companies have witnessed a significant contraction in EBDITA margins on the back of higher steel and aluminium prices during the quarter, Maruti has witnessed a decline in raw material costs as a percentage of sales. However, in the same period last year, there was an unusual increase and to that extent, the decline is not necessarily an indication of any downward trend in input costs. In fact, the company enters into the procurement contracts for steel purchases in October/November of any year and given the fact that commodity prices have been volatile in the international markets, not much leeway can be expected. On the contrary, we expect the company to incur higher costs towards raw materials and promotions in line with the launch of new models from Suzuki's stable going forward (new models typically have higher import content for the six months of the launch). Over the next two to three years, we have a cautious view on margins because of competitive factors. However, if commodity prices were to soften significantly, there could be an expansion in margins.
(Rs m) | 2QFY06 | 2QFY07 | Change | 1HFY06 | 1HFY07 | Change |
Raw materials | 23,660 | 25,570 | 8.1% | 44,121 | 49,165 | 11.4% |
% sales | 77.9% | 74.8% | 77.9% | 75.1% | ||
Staff cost | 576 | 714 | 23.8% | 1,137 | 1,339 | 17.8% |
% sales | 1.9% | 2.1% | 2.0% | 2.0% | ||
Other expenses | 2,643 | 3,152 | 19.3% | 4,629 | 5,620 | 21.4% |
% sales | 8.7% | 9.2% | 8.2% | 8.6% |
Depreciation saves the day: Despite the fact that the company has outlined around Rs 100 bn as capital expenditure by 2010 towards new product development and capacity augmentation, depreciation charges have declined in 1HFY07. Last year, the company wrote back excess depreciation provisioning to the tune of Rs 1 bn, which seem to have continued in FY07 as well. Improved cash flow from operations has enabled Maruti to retire debts in 1HFY07, which is reflected in lower interest costs (the company was debt free in FY06).
Over the last few quarters: As is evident from the charts below, while EBDITA and net margins have expanded on a YoY basis, they are more or less in line with what has been reported in the previous quarters. This supports our view that despite seasonal fluctuations, significant upside to margins is limited. At the end of the day, the auto sector is volume driven and volumes determine operating leverage.
![]() |
![]() |
| |