Profit had risen by 48% in the preceding quarter ended June 2009 to Rs597 crore. But the growth was more or less anticipated by the street. The reported net profit was only marginally higher than consensus estimates.

The jump in profit growth was owing to higher volumes and an improvement in profit margins. Vehicle sales grew by 30% last quarter, much higher than the 18% recorded in the June quarter.

The growth in average sales realizations, at 13%, was almost the same as in the June quarter.

Price realizations have been improving for Maruti owing to a better product mix, with new models such as Swift DZire doing well.

Graphics: Paras Jain / Mint

The improvement was primarily owing to savings on material costs, which fell as a percentage of sales thanks to the drop in commodity prices and cost cutting measures taken by the company.

Due to the strengthening of the yen versus the rupee, cost of imported materials rose, so it’s commendable that the company managed cost savings despite this.

Operating profit per vehicle sold has risen by as high as 37% on a year-on-year basis. In the year-ago September quarter, the company made an operating profit of Rs27,200 on every vehicle it sold. This has risen to Rs37,200. What’s more, the company has reported an earnings per share (EPS) of Rs40 in the first half of this year, which is almost as much as the EPS for the entire last year (Rs42.2).

While all these growth numbers are impressive, much of this has been factored in by the street, since the volume growth numbers were already known, and so was the fact that margins would rise because of lower commodity costs. The September quarter represented a sweet spot for the company in that sense.

But performance is likely to continue being impressive for the rest of the year, although the company would have to contend with higher material costs, owing to price renegotiations with steel manufacturers. Volume growth is likely to remain high and earnings in the second half period are likely to be higher than the first half.

At its peak of around Rs1,700 in end-September, the Maruti stock enjoyed a trailing 12-month price-earnings multiple of over 30 times.

While the stock has corrected since, valuations are still at rather high levels of 27 times, considerably higher than the company’s historical average.

But with no investment alternatives in the passenger car space and growth expected to continue to be high in the near term, the stock should do well as long as the rally continues.

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