Net sales during the recently concluded quarter rose significantly mainly on volume growth (up 17.7% y-o-y) and higher realisation per vehicle (12.9% y-o-y).
Realisation improved mainly on better product mix (launch of Ritz in higher band of the A2 segment), rise in exports (up 135% y-o-y) which generally fetch better realisation as compared to domestic market and favorable currency movement of ~15%. This led to contribution margin increasing by 210 bps q-o-q but declining by 100bps y-o-y.
Other operating expenses as a percentage of sales declined to 6.8% in Q1FY10 from 8.7% in Q1FY09, thereby reaping benefits of cost reduction programmes initiated by the company, seeing EBITDA margin at 10.6% (+90bps).
The stock trades at 18x FY10E core earnings after adjusting for cash per share of Rs204. For FY10 and FY11, we have estimated earnings growth of 64% y-o-y and 13% y-o-y.
We remain skeptical of any upsides as the premium valuation factors in the superior dealer network and brand recognition of Maruti. Recommend UNDERWEIGHT.