Stock Review: MARUTI SUZUKI

For Maruti Suzuki, the largest player in the domestic passenger car market, the June 11 quarter results have been broadly above analysts' estimates. These come at a time, when the company has been grappling with a rather difficult operating environment due to rising auto finance rates and the recent strike at its facilities.

The company's operating profit margins were broadly flat on a YoY basis at 9.5% in the first quarter of FY12, while net sales rose 2.6% to . 8,529.3 crore in the quarter. Its average realisation per vehicle sold improved nearly 3.3% YoY in the first quarter, and it helped the company deal with higher commodity input prices. Higher realisations were attributed to an expanding proportion of higher-margin cars running on diesel engines. In contrast, during FY11, Maruti's operating margins fell on a YoY basis. The recent strike at Maruti's facilities, coupled with consumers delaying purchases, resulted in its total vehicle sales that declined 0.6% YoY to 2.81 lakh units in the June 11 quarter. This was in sharp contrast to a 24.8% YoY rise in Maruti's total vehicle sales during FY11.
Maruti's market share in the passengar car market has also weakened in the June 11 quarter compared to a year earlier., say analysts. The company's other income jumped nearly 79.3% YoY to . 180.1 crore in the June 11 quarter, and this was partly due to a capital gains of nearly . 40 crore on its longterm investments. As a result, its net profit grew 18% YoY in the first quarter, substantially better than FY11, where its net profit fell 8.4% YoY.

However, if one were to exclude the above rise in other income, its adjusted net profit would have been broadly flat on a YoY basis. The stock declined 0.4% to . 1,177 on Tuesday, and is also hovering just above its 52-week low.

With the RBI once again hiking policy rates, analysts are concerned that passenger car sales in the domestic market will continue to remain sluggish in the short term. However, the company is expected to shortly expand its diesel engine-based car production capacity and that should help it continue to get better realisations, over the next few quarters. However, commodity input prices remain at elevated levels and it remains to be seen if the company is able to protect its operating margins, going forward. The stock trades at a P/E of 14.3 times on a trailing four-quarter basis and it appears to have factored in the company's growth in the short-term.