BackNew models power Maruti to 25% growth in profit
New models power Maruti to 25% growth in profit
PremiumShares of Maruti Suzuki India Ltd have risen by almost 150% this calendar year compared with a 57% rise in Sensex. It seems the firm has justified the markets’ faith with a better-than-expected set of financial numbers for the three months ended June. The reported net profit of Rs583 crore is way higher than the consensus estimates of Rs425 crore of analysts polled by Bloomberg. According to an analyst, the reported profit has even beaten the most bullish estimate on the street of about Rs500 crore. Given the high degree of outperformance, analysts would now be busy revising profit estimates for the year.
Maruti has been able to drive sales of these new models thanks to its ability to take advantage of the revival in vehicle financing. Besides, in the overseas market, the so-called “scrappage incentive" of European governments, where they pay consumers to junk old vehicles for new ones, has helped push up exports by 134%. Now, every one in seven cars the company sells is exported. These new cars, more expensive compared with previous favourites such as the Maruti 800 and Alto that made up the bulk of sales, have helped improved realizations.
The company has done well on the expenditure front, too, reducing sales and marketing expenses while benefiting from softening prices of key commodities such as steel and rubber. The company also plans to source more raw materials and components locally, which will add to savings. Perversely, the global slowdown has helped in reducing other costs such as shipping, freight and port expenses, said analysts.
As a result of the cost containment and the higher realizations, the company’s operating margins rose by 106 basis points and operating profit grew 47% to Rs597 crore.
The stock is now valued at a rich price-earnings multiple of 18 times estimated fiscal year 2009-10 profit. In a conference call, the company said it was “cautiously optimistic" about growth prospects, but some concerns such as monsoons that are key to rural sales (which make up nearly 12% of total sales) and interest rates pressure still remain. Still, given the lack of credible alternatives in the auto space and the strong growth recorded by the firm, interest in the stock should sustain.
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