 "Maruti: Currency gains, lower costs drive PAT growth")
Maruti Suzuki’s March quarter numbers have beaten the Street’s estimates by a long shot. The company has beaten estimates with a 60.5 per cent growth in net profit, on the back of a modest volume growth of seven per cent and sales growth of 13 per cent compared to last year.
Earnings growth was fuelled by a 300 basis point sequential bump up in operational margins (15.9 per cent) during the quarter on lower costs, higher realisations and beneficial currency movement. The company’s operating margin in the corresponding quarter last year was 10.4 per cent.
Several factors have come together to aid Maruti’s stellar performance in the March quarter. A sharp fall in commodity prices and weakness in the yen has helped the firm turn in record profits. During the quarter, the yen depreciated 16.82 per cent y-o-y, which has pushed down input costs. Imported content in Maruti’s vehicles currently stands at 16 per cent of sales and thanks to a depreciation in yen and the euro, raw material costs fell sharply during the quarter. Raw material costs as a percentage of sales declined 234 basis points sequentially and 567 basis points year-on-year to 67.7 per cent during the quarter. Other manufacturing costs as a percentage of sales also declined during the quarter. Other than currency and lower commodity costs, the company’s realisations also improved five per cent during the quarter on lower discounts.
However, the market is divided on margins, which have hit a historical high and might not sustain throughout the new financial year. Reliance Securities says: “We, however, take this as a pinch of salt and await management clarity on sustenance of such margin performance and suspect some additional forex related benefits could have percolated during the quarter.” The management conveyed in the analyst call that a pick-up in volumes and lower discounting would support margins, but refused to predict currency movement and commodity prices was tough.
Earnings growth was fuelled by a 300 basis point sequential bump up in operational margins (15.9 per cent) during the quarter on lower costs, higher realisations and beneficial currency movement. The company’s operating margin in the corresponding quarter last year was 10.4 per cent.
Several factors have come together to aid Maruti’s stellar performance in the March quarter. A sharp fall in commodity prices and weakness in the yen has helped the firm turn in record profits. During the quarter, the yen depreciated 16.82 per cent y-o-y, which has pushed down input costs. Imported content in Maruti’s vehicles currently stands at 16 per cent of sales and thanks to a depreciation in yen and the euro, raw material costs fell sharply during the quarter. Raw material costs as a percentage of sales declined 234 basis points sequentially and 567 basis points year-on-year to 67.7 per cent during the quarter. Other manufacturing costs as a percentage of sales also declined during the quarter. Other than currency and lower commodity costs, the company’s realisations also improved five per cent during the quarter on lower discounts.
However, the market is divided on margins, which have hit a historical high and might not sustain throughout the new financial year. Reliance Securities says: “We, however, take this as a pinch of salt and await management clarity on sustenance of such margin performance and suspect some additional forex related benefits could have percolated during the quarter.” The management conveyed in the analyst call that a pick-up in volumes and lower discounting would support margins, but refused to predict currency movement and commodity prices was tough.