Maruti: In the fast lane

Maruti turns in good Q1 numbers riding on the cut in excise duty on small cars.

Maruti has posted reasonably good results for the June 2006 quarter having cashed in on the reduction in excise duty on small cars, from 24 per cent to 16 per cent, announced in the last Budget. Domestic volumes shot up 19 per cent y-o-y as did sales at Rs 3,114 crore.

Thus, though the company does not have much pricing power, it is able to sell volumes, nonetheless. The A2 segment has done particularly well with volumes growing 25 per cent during the quarter, driven by the Swift.

However, the growth in the entry-level A1 segment, which includes the Alto and the Maruti 800, was less than 5 per cent.

Thanks to a check on raw material costs, the automaker's operating profit margin has improved 240 basis points and the operating profit has jumped a smart 42 per cent y-o-y to Rs 445 crore.

However, the leap in the net of 63 per cent to Rs 370 crore was due to a steep 46 per cent rise in the other income. The roll-out of the Swift with the diesel engine, expected towards 2007-end, should boost sales further, though there will be competition from Hyundai and Tata Motors.

Besides, Maruti plans to launch some more models in the next few years. While exports were down nearly 30 per cent in FY06, they were up 14 per cent in the June quarter. The Swift is being exported by Suzuki from its Hungary plant, but Maruti is planning to build another car for exports.

The Maruti stock trades at under 16 times its estimated FY07 earnings and 13 times its estimated FY08 earnings and though not cheap it is not too expensive either.

The current scenario is less friendly than it was a year ago with both fuel prices and interest rates up, but disposable incomes continue to rise as do aspirations.

ONGC: Subsidy blues

The key takeaway from ONGC's June quarter results is that its production levels are back to normal and the company has once again only been able to partially leverage high crude prices, though the subsidy burden continued to surge.

The company's operating profit grew 32.83 per cent y-o-y to Rs 8109.43 crore in Q1FY07, compared with a 34.3 per cent growth in net sales to Rs 14,602.77 crore.

The company's crude oil production in the June 2006 quarter was at 6.48 million tonne (approximately 9,00,000 barrels), which was flat on a y-o-y basis.

The fire at its Bombay High facilities in July 2005 had led to a dip in its production volume to 24.4 million tonne in FY06 against 26.48 million tonne a year earlier.

Meanwhile, ONGC's gross realisations were pegged at $68 a barrel in the June quarter compared with $51 a barrel last year.

However, its subsidy burden amounted to Rs 5,120 crore against Rs 2876 crore a year earlier. The rising subsidy burden resulted in operating profit margins dipping 63 basis points y-o-y to 55.53 per cent in Q1FY07.

Going forward, international crude prices are expected to remain strong, but the company's subsidy burden is also expected to rise substantially.

Along with the correction in the market and rising global crude oil prices, the ONGC stock has fallen more than 21 per cent since its high in May, while the Sensex has declined 15 per cent. At about 10 times its estimated FY07 earnings (without considering the bonus), the stock appears attractive.

With contributions from Shobhana Subramanian and Amriteshwar Mathur