Maruti: A-star foretells a better 2009-10

India’s largest car maker, Maruti Suzuki continues to find the going tough in 2008-09; it could end the year with smaller volume numbers even if things improve in the last three months. For December, the car maker’s volumes were lower by about 10 per cent, the drop being less steep than 24 per cent in November. Between April-December 2008 car sales have declined by 1.3 per cent.

On a lower base of around 7,40,000 vehicles though, 2009-10, might just be a better year. For one, interest rates on auto loans are expected to come down and by the second half of 2009, banks might be more willing to lend than they are right now. More important, customers could be in a better frame of mind, if the economy picks up and they’re more sure of their jobs and incomes. What should also help the Rs 18,376 crore Maruti is the export contract for the new small car, A-star, with Nissan; even if the numbers are smaller than what was earlier expected, it would still make a difference. Industry watchers believe the A-star should find takers overseas and back home too, and the small car should do fairly well. Sales of Maruti’s other models though would depend on how quickly the economy revives.The Swift, the Dzire and the SX4 are also clocking decent volumes.

While Maruti’s operating profit margins dropped 440 basis points to 11.1 per cent in the first half of 2008-09, lower prices of steel and aluminium will bring down the raw material bill. However, the rupee has been depreciating against the yen and if the trend continues, the benefit of falling steel prices would be, to some extent, offset by the adverse currency movements. About 12 per cent of the firm’s raw material import bill is denominated in yen. Analysts are expecting a fall in the net profits for 2008-09 of 12-13 per cent over the Rs 1,731 crore posted in 2007-08. For 2009-10, profits should increase by about 16 per cent on a lower base though much depends on the A-star and exports. At the current price of Rs 549 the stock trades at around 10.5 times estimated 2008-09 earnings and around 9 times estimated 2009-10 earnings.