During Q2FY09, Maruti clocked 6.3% growth in net sales to Rs4,994 crore (including service income), which was slightly above our expectation of Rs4,570 crore.
The sales performance came on the back of 1% y-o-y decline in volumes and average realization per vehicle moving up 7.2% y-o-y, which was primarily due to the change in sales mix and better performance by higher realization segments like A3 and MUVs.
The company witnessed a substantial 480bp y-o-y fall in EBITDA margins owing to high raw material cost, which spiked 9.8% and accounted for over 79.7% (76.7%) of sales.
Product mix variance and high commodity prices saw raw material costs increasing substantially.
Operating Profit was impacted to the extent of Rs18 crore by unfavourable forex fluctuation. Other Expenditure also increased mainly on account of a rise in Royalty by 0.8% y-o-y to 3.4% (2.6%).
The prevailing high fuel prices also led to an increase in other expenditure. The number of employees increased to 8,102 (6,731) in the R&D Department and the new engine shop at the Manesar plant, leading to staff costs increasing 28.1% y-o-y to Rs116.5 crore in Q2FY09. Overall, the company reported 27.1% y-o-y decline in operating profits.
Net Profit for the quarter declined 36.5% y-o-y to Rs296 crore. Depreciation increased sharply by 88.2% to Rs165.8 crore on account of a change in depreciation policy.
We expect Maruti’s valuation to be largely determined by its ability to maintain marketshare amidst a harsh industrial scenario and intensifying competition.
At the CMP, the stock is available at 9.3x FY09E and 8.3x FY10E earnings. We have revised our EPS estimates for FY09 and FY10 to Rs57.5 (Rs61.1 previously) and Rs64.2 (Rs71.6 previously), respectively.
We maintain a BUY on the stock, with a revised target price of Rs674 (Rs750 earlier).