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Maruti Suzuki: Domestic volumes surge - Views on News from Equitymaster
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Maruti Suzuki: Domestic volumes surge
Nov 6, 2014

Maruti Suzuki announced its results for the second quarter September 2014 recently. The company reported a 17.5% YoY and 29% 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 17% YoY increase in volumes.
  • Operating profits grow by 15% YoY as margins contract by 0.2% to 12.4% in 2QFY15. The same is due to higher raw material costs (as a percentage of sales).
  • Net profits grow faster by 29% YoY during the quarter led by higher other income and reduction in interest costs.

Financial performance: A snapshot
(Rs m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
Total Vehicles Sold (No.) 275,586 321,898 16.8% 542,020 621,792 14.7%
Net sales 104,681 123,038 17.5% 207,054 236,734 14.3%
Expenditure 91,466 107,829 17.9% 182,178 208,244 14.3%
Operating profit (EBDITA) 13,214 15,208 15.1% 24,876 28,490 14.5%
EBDITA margin (%) 12.6% 12.4%   12.0% 12.0%
Other income 1,010 1,933 91.3% 3,053 4,898 60.4%
Finance costs 434 348 -19.8% 876 733 -16.3%
Depreciation 4,992 5,989 20.0% 9,793 11,825 20.7%
Profit before tax 8,799 10,805 22.8% 17,260 20,830 20.7%
Tax 2,097 2,179 3.9% 4,241 4,582 8.0%
Profit after tax/(loss) 6,702 8,625 28.7% 13,018 16,248 24.8%
Net profit margin (%) 6.4% 7.0%   6.3% 6.9%  
No. of shares (m)         302.1  
Diluted earnings per share (Rs)*         102.8  
Price to earnings ratio (x)*         32.0  
(* On a trailing 12-month basis)

What has driven performance in 2QFY15?
  • Maruti Suzuki's revenues during the quarter grew by 17.5% YoY as volumes were up by 17% YoY. Growth was largely led by the super compact and mid-sized segments as volumes were up by a robust 91% YoY and 58% YoY respectively. But these were not the only segments that did well. Vans and multi-utility vehicles (MUVs) also saw volumes rise by 38% YoY and 45% YoY respectively. That said, growth in the volumes of the mini and compact segments were relatively tepid at 11% YoY and 18% YoY respectively. As a result, overall domestic volumes were up 19% YoY. Growth in export volumes was flat during the quarter.

  • Maruti's operating margins shrank marginally by 0.2% to 12.4% in 2QFY15 on account of a rise in raw material costs (as percentage of sales). Had it not been for the fall in staff costs and other expenditure, margins would have shrunk further.

  • Net profits grew faster by 29% YoY during the quarter led by higher other income and reduction in interest costs.
What to expect?
At the current price of Rs 3,289, the stock trades at a multiple of 12.1 times our estimated FY17 cash flow per share. Maruti Suzuki intends to continue its cost rationalization and localization initiatives in FY15 as well. Maruti's management is upbeat about the recovery in the urban markets and is looking at various ways to capitalise on this. The company has lined up a series of new product launches which include a sedan, LCV and a compact SUV over the next two fiscals. From a long term perspective, the management remains confident of growth prospects led by 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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