For the third quarter ended December, Maruti Suzuki India Ltd, the country’s largest car maker, sprang a positive surprise with a higher-than-expected net profit of Rs688 crore.

Analysts’ consensus had been that the company would post a net profit of around Rs580-600 crore. The biggest saving came through lower raw material costs.

On a year-on-year basis, raw material costs fell to around 76% from around 81%. In the immediately preceding quarter ended September, raw material costs were around 77%. Part of the savings accrued from earlier contracts struck at lower rates.

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Other expenditure too was lower at around 9% of sales compared with 12% in the year before period. There is a forex gain of around Rs18 crore as opposed to a loss of around Rs62 crore on the same count in the year-ago period. The company managed to cut staff costs by around 60 basis points to around 1.8% of sales this quarter. As a result, operating profit margin (OPM) jumped from 6.5% to around 15.5% on a year-on-year basis. On a sequential basis too, OPM was higher by around 2 percentage points.

Revenue growth too was impressive although in line with street expectations. At around Rs7,334 crore, net sales were around 63% higher than in the year-ago period. But sequentially, net sales were higher only by around 4%. The car maker sold 258,026 vehicles in the December quarter which was 48.7% higher than in the year-ago period and around 4.8% sequentially.

A section of analysts point out that while net average realizations were higher compared with the previous corresponding quarter by nearly 10%, it was flat or marginally lower on a sequential basis. The company also sold fewer cars in the domestic market in December at around 71,000 compared with 76,359 in November and 71,551 in October. The kicker in terms of volume growth, however, was the surge in exports by nearly 160% to 39,116 vehicles. “Maruti has benefited from the incentives offered in Europe to buy cars, as a measure of beating the recessionary trend," says Umesh Karne, analyst, Brics Securities Ltd, explaining that nearly half the exports is to European nations.

The moot question is whether this kind of stellar performance would continue into the next quarter? That seems unlikely. Nearly 250-300 basis points of gain in the OPM has accrued from one-off benefits on account of raw material and favourable exchange fluctuations, which may not hold out in the coming quarters. Besides, the company might have to invest in product development arising due to the change in emission norms in the coming fiscal. At Rs1,440, the stock discounts the current year’s expected earnings by around 17 times.

Graphics by Yogesh Kumar/Mint

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