Domestic sales of Maruti Suzuki India Ltd grew by as much as 60% in November to 76,360 units, much higher than the 16.3% recorded between April and October. The jump in growth is largely due to a sharp drop in sales in November 2008, which resulted in a low base. Sales had averaged 58,700 units in the April-October period last year, but dropped to just 47,700 in November 2008. Compared with sales in October, sales grew by around 7% last month.
According to a recent research report by Motilal Oswal Securities Ltd, volumes in November were expected to get a boost as the company planned to make up for a loss in production in December owing to a plant shutdown. On a month-on-month basis, therefore, sales are practically flat. Sales in December 2008 stood at 52,030 units, also representing a low base, and hence growth numbers should look impressive at least for another month.
From January, the base would rise to 67,000-70,000 units, and growth numbers would start looking less spectacular. Still, volumes are likely to inch upwards from current high levels. A number of the company’s models have a waiting period for delivery. Demand in both rural and urban areas has been strong, spurred by easier availability of financing for car buyers. Besides, the company has also been spreading its rural marketing network.
While the outlook for volumes is strong, the auto maker is likely to face some pressure on costs. Prices of most commodities have risen and as the company prepares to renegotiate contracts with suppliers, it would have to agree to a hike in the prices of raw materials such as steel and tyres. Of course, the company is likely to pass on some of this to its customers. But things won’t be as rosy as this year, when volumes grew sharply and commodity-related costs were benign.
As a result, Motilal Oswal’s analysts expect earnings growth of only around 11% in the year till March 2011, compared with growth of as much as 66% in the current year. At current prices, the stock trades at around 20 times estimated earnings for this fiscal, which looks expensive.
But then, Maruti is the only pure play on the Indian passenger car market, and this factor is likely to keep interest in the stock high—at least as long as the volumes story is intact.
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