Stock Review: Maruti Suzuki

Maruti Suzuki's February sales figures have surprised the Street.

A 15.5 per cent year-on-year growth in volume and 1.7 per cent month-on-month to 111,645 units clearly reiterates the company's stronghold over the passenger car market. For awhile now, analysts have believed, the company would not be able to hold on to either margins or marketshare due to increased competition. As sales figures show, the company has not suffered as far as marketshare is concerned.

Interestingly, Maruti is going to be the only beneficiary of rising oil prices. Analysts believe, Maruti sells more units under such circumstances, as its vehicles are more fuel efficient. While Maruti has held on to marketshare, margins have fallen by 5-10 per cent, primarily due to forex volatility. Given that the company pays for imports in Japenese yen and exports to Europe, the rise of the yen and fall of the euro has affected the company's margins. It is, therefore, not bad news that the company's exports have been coming down. The company believes India will be a key piece of its global strategy as sales in Europe have started to decline. The company's share of European exports will fall from 78 per cent to 50 per cent this year.

The management believes it has managed to hold on to the marketshare as it understands Indian consumers. The company's focus on the youth by associating with motor sports events has paid off and struck a chord with consumers. The company has a product roadmap till 2018, which includes new launches and refreshments of existing lines.

One of the major issues Maruti has addressed is debottlenecking production. It has improved productivity and production efficiencies by 30 per cent without making any extra capex. By next month, the company will have a runrate of 1.4 million cars per annum. By the first half of FY12, additional capacity of 250,000 cars will come up in Manesar and another 250,000 by FY13. While the going looks rather good for the company, the usual risks of increased cost of ownership and rising raw material costs will continue to be a key short-term risk. In the long term, if the government reduces import duty on completely built units, as is being discussed, then Maruti faces a much larger risk.

Debottlenecking of capacity will start showing from April as the annual run-rate will go up to 1.4 million