Maruti, India’s largest passenger car manufacturer, has put up a robust 2QFY05 performance. During the quarter, while the topline has grown by 25% YoY, the growth in bottomline is significantly higher at 48% YoY. Improvement in operating margins and savings on the interest front were some of the other highlights. For the half yearly period, the corresponding figures stood at 24% and 45% respectively.
Operating profit (EBDITA)
EBDITA margin (%)
Profit before tax
Profit after tax/(loss)
Net profit margin (%)
No. of shares (m)
Diluted earnings per share (Rs)*
Price to earnings ratio (x)
Maruti Suzuki, incorporated in 1981, is the country's largest passenger car manufacturer with a market share of 60% in FY04 in the domestic market. While Suzuki, Japan holds a 54.2% equity stake in the company, the government of India has brought down its equity stake to 20.8% through two phases of disinvestment. After remaining a near monopoly till 1992, the entry of other multinationals and the emergence of domestic competition have resulted in the company losing market share. However, the company has been able to steady its share in the Indian passenger car segment through aggressive capacity expansion and new product introductions.
What has driven performance in 2QFY05?
A2 segment leads the pack: Continuity of benign interest rate regime and steady rise in the income levels has enabled the company to post a strong 20% growth in volumes during the quarter. However, unlike previous quarters, the growth was largely powered by offerings in the higher segment viz, the A2 and A3 segments. While the former grew by 74% YoY, the growth in the latter more than doubled, thanks mainly to the price re-positioning strategy adopted by the company. However, this seemed to have little effect on realisations, as the growth in value terms came in a little higher than growth in volumes, indicating a better product mix. Market share of the company climbed to 55%, an improvement of 100 basis points over corresponding quarter last year.
Cars - Performance snapshot
Alto, Wagon-R, Zen
Total passenger cars
Lower employee cost benefits: In a quarter where most of the auto companies have struggled to keep margins under check owing to spiraling input costs, the company has actually done the reverse. It has to be remembered that the company, over the past couple of years, has reduced its manpower by more than 2,000. The employee cost has been slashed by close to 40% in the quarter under review.
The lower interest cushion: Despite higher tax component to the tune of 86%, the growth in net profits have been significantly higher than the topline growth of 25%. Apart from improvement in operating margins, what have also enabled the company to post a higher bottomline growth is the 10% reduction in interest expense and a lower depreciation charge.
What to expect?
At Rs 358, the stock trades at a P/E multiple of 14.6 times annualised 1HFY05 earnings. With the car demand in the country expected to grow at a fair clip in the medium to long term, the company is expected to be the largest beneficiary of the same owing to its offerings in the small car segment and the biggest distribution network. Having said that, any wrong step taken by the parent, Suzuki, might limit the company’s growth prospects. This may have a impact on valuation as well. Caution needs to be exercised to that extent.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407