 "Currency benefit and other income drive Maruti's Q1 profit")
Despite a 10 per cent decline in volumes, Maruti Suzuki India's net profit in the first quarter (Q1) grew 49 per year-on-year (y-o-y) to Rs 631 crore. The uptick in profit was driven by a beneficial currency effect and the merger of Suzuki Powertrain India Ltd with the parent (Maruti). Suzuki Powertrain has a 40 per cent revenue exposure to the yen and depreciation of the yen has helped improve operating margins by 410 basis points, y-o-y, to 11.4 per cent in the first quarter. The net profit would have been higher, had it not been for a higher tax rate and depreciation during the quarter.
Before the merger, Suzuki Powertrain was a vendor of Maruti Suzuki but with the merger, its gains are now reflected in the bottom line of the parent. Other income, too, grew by 82 per cent to Rs 200 crore, which also helped push up the net profit margin. The company's net profit margin improved 224 basis points to 6.2 per cent in Q1.
While full-year margins are likely to be better than FY13, margins could trend down slightly over the next three quarters, as the management is expecting discounts to pick up. Even though there is no indication that sales will pick up over the next few quarters, Mitul Shah of Karvy Stock Broking believes the company's strategy of launching new vehicles at regular intervals and push in rural areas will help take on competition. Currently, rural sales account for 30 per cent of overall sales and are growing in double digits. So far, Maruti has retained its marketshare at 40 per cent.
This implies the company will have to push sales by giving discounts. Although average selling price per vehicle improved by five per cent, y-o-y, in Q1, analysts believe this would decline in the coming quarters on heavy discounting in the diesel segment. Yaresh Kothari of Angel Broking believes that going forward, margins could see some impact from higher discounts. Discounts in Q1 stood at Rs 13,436 a vehicle. However, the management conveyed to analysts during its earnings call that the discounts kicked in only in June and that they would only accelerate from these levels in the coming quarters. Although Maruti continues to be a favourite of analysts, volume growth remains a key challenge.
Before the merger, Suzuki Powertrain was a vendor of Maruti Suzuki but with the merger, its gains are now reflected in the bottom line of the parent. Other income, too, grew by 82 per cent to Rs 200 crore, which also helped push up the net profit margin. The company's net profit margin improved 224 basis points to 6.2 per cent in Q1.
While full-year margins are likely to be better than FY13, margins could trend down slightly over the next three quarters, as the management is expecting discounts to pick up. Even though there is no indication that sales will pick up over the next few quarters, Mitul Shah of Karvy Stock Broking believes the company's strategy of launching new vehicles at regular intervals and push in rural areas will help take on competition. Currently, rural sales account for 30 per cent of overall sales and are growing in double digits. So far, Maruti has retained its marketshare at 40 per cent.
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The slowdown in urban areas is what concerns the company. Maruti is now seeing an across-the-board slowdown in sales of diesel vehicles. Even though the company has guided for a volume growth of zero to five per cent in FY14, analysts believe the company could end the year with a zero to two per cent growth in volumes. The slowdown is evident not only in the domestic market but also in exports. In Q1, Maruti's exports fell 35 per cent to 21,088 units.
This implies the company will have to push sales by giving discounts. Although average selling price per vehicle improved by five per cent, y-o-y, in Q1, analysts believe this would decline in the coming quarters on heavy discounting in the diesel segment. Yaresh Kothari of Angel Broking believes that going forward, margins could see some impact from higher discounts. Discounts in Q1 stood at Rs 13,436 a vehicle. However, the management conveyed to analysts during its earnings call that the discounts kicked in only in June and that they would only accelerate from these levels in the coming quarters. Although Maruti continues to be a favourite of analysts, volume growth remains a key challenge.