Maruti: Strong demand for diesel vehicles drives earnings

Last Updated: Sat, Jan 26, 2013 05:18 hrs

The operational performance of Maruti Suzuki India Ltd is back on track. The company reported a strong set of numbers on Friday with volumes, sales and margins showing an uptick. Though the financial year so far has not been good for the auto sector, Maruti has done well operationally as its product mix has improved (higher tilt towards high-margin diesel vehicles like Ertiga and DZire) and demand for its vehicles has been steady during the festive season. Also, the favourable currency movement has helped the company improve its earnings profile.

Second, the corresponding quarter in the previous year had been hit by labour action at its factories in Manesar. The low base effect has contributed to the year-on-year (y-o-y) growth in revenues and profits. The company's revenues grew by 45 per cent annually and 34.9 per cent sequentially to Rs 11,200 crore for the December 2012 quarter.

The quarter has seen strong volumes, wherein domestic volume increased 27 per cent and export volumes expanded 17 per cent y-o-y. Apart from a better product mix, price hikes during the quarter also helped boost profitability.

While realisation per car went up, thanks to the skew towards diesel products, costs came down. The company's average selling price increased 16 per cent y-o-y and four per cent sequentially to Rs 363,470 per vehicle. As a percentage of sales, raw material costs fell 65 basis points y-o-y and 117 basis points sequentially to 78.4 per cent, while other manufacturing and sales expenses as a percentage of sales also declined in the December quarter. According to Mitul Shah of Karvy, the strong performance delivered by Maruti is commendable given the adverse economic situation, which led to historically high discounts on vehicles at the end of the quarter.

The company's operating profit margins, which have been under stress over the last several quarters due to high input costs, adverse currency movements and high discounts, are seen to be improving, going forward. Yaresh Kothari of Angel Broking says margin on earnings before interest, tax, depreciation and amortisation improved 275 basis point y-o-y and 180 basis points sequentially to eight per cent, led by better product-mix, higher export realisation, operating leverage benefits and favourable currency movement. With another round of price hikes seen in January this year, analysts expect the company's margins to improve further in the coming quarters. Also, with interest rates expected to come down, it should only add to the volumes.

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