| Average realisations improved by 7.6 per cent year-on-year, higher than the 4.3 per cent improvement in the first half. |
| Income from operations increased 27.3 per cent last quarter, and the higher jump in profit was mainly owing to a 300 basis points improvement in operating margin, apart from a drop in interest cost and depreciation. |
| But the jump in operating margin was mainly on account of a drop in staff costs, which in turn was because last fiscal's December quarter results included an extra-ordinary VRS charge amounting to Rs 85.08 crore, Stripped of this, there is a 70 basis points drop in operating margin and operating profit growth would be lower at 20.3 per cent. |
| In the first six months, operating profit growth was 41.5 per cent even after accounting for the previous fiscal's extraordinary VRS charge. |
| The reason for the hit on margins was a 200 basis points jump in raw material expenses last quarter. In comparison, raw material expenses had fallen by 35 basis points in the first half period. |
| But higher commodity prices were expected to catch up with Maruti's financials. |
| Even on a sequential basis, raw material expenses rose 200 basis. Keeping that in mind, it's impressive that Maruti managed to increase margins by 30 basis points sequentially to 12.4 per cent. |
| It's for this reason that the Maruti share gained over four per cent despite the fall in the broad markets. |
| L&T |
| The Larsen & Toubro (L&T) stock was down 3.2 per cent on Monday, as the last quarter results were below market expectations. Its 30 per cent growth in profit after tax to Rs 132.35 crore was largely helped by "other income" rising 92.35 per cent (thanks to foreign exchange gains) to Rs 83.56 crore. |
| Revenues of the key engineering and construction (E&C) division grew 35.3 per cent y-o-y to Rs 2821.44 crore, helped by the company's emphasis on the electricity and oil and gas sector. |
| But with steel prices rising about 30 per cent y-o-y and staff costs, especially for its technical personnel, also increasing, profit growth was lower at 21.85 per cent. |
| The order backlog of the E & C division fell 7 per cent at the end of Q3 FY05 to Rs 16,434 crore, because of delays in getting approvals for new projects. |
| The electrical and electronics (E&E) division reported only a 4.14 per cent growth in segment profit, despite revenue growth of 24.5 per cent. While demand was strong, this division also had to face rising input costs. |
| Going forward, the company is expected to benefit as the capex cycle is expected to further strengthen over the next 12-15 months but growth in earnings will also be determined by the company's ability to manage input costs. |
| Margin dent for Mahindra & Mahindra |
| With most auto companies taking a hit on margins owing to higher input prices, it's not surprising that M&M, too, reported a 70 basis points drop in operating margin. |
| In the first six months, M&M had managed to offset higher input costs by cutting its other expenses sharply, resulting in a 240 basis points increase in margins. |
| Attempts to pass on the recent sharp increase in input costs was not entirely successful as the price increases were effective only in December 2004. |
| The automotive segment bore the brunt of the jump in raw material costs, with its margins falling by 180 basis points. |
| The tractor segment, prices of which had been raised by 5.5 per cent in 2004, was better off. The price increase coupled with a shift to tractors with higher HP (horse power) led to a 170 basis points increase in the segment's margins. |
| M&M's profit growth (before tax and exceptionals), although lower than the first half period, was impressive at 44.4 per cent. The M&M stock now trades at around 11 times FY06 estimated earnings, with a possibility of a significant rerating if the value in its major subsidiaries are unlocked. |
| Besides, the string of auto ancillary companies the company has bought recently was with the intention of not only meeting captive demand, but also to tap outsourcing opportunities in component design and manufacturing. |
| This could turn out to be a growth driver in itself going forward. |
| With contributions from Mobis Philipose and Amriteshwar Mathur |
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