Maruti: Not enough drivers

Sluggish retail demand threatens to slow down the sales momentum for the car maker.

It's been a rough drive for India' biggest car maker the Rs 17,936 crore Maruti Suzuki in the March 2008 quarter. With sales up just 8 per cent, and steel and aluminum costs not coming off, the car maker has seen its operating profit fall and the margin dented by 140 basis points to 11 per cent.

Adjusting for a change in the depreciation policy""the company plans to write off assets over a shorter period---the net profit has gone up by a decent 13.4 per cent, partly because of a lower tax bill.

Maruti has ended FY08 with a net profit growth of about 11 per cent at Rs 1,731 crore but the road ahead seems to be a difficult one. The car market has been losing momentum over the past few months and retail demand has turned sluggish.

With interest rates staying high and the economy showing signs of a slowdown, consumer demand is not about to bounce back in a hurry and so sales for the industry are likely to grow at just about 10 per cent in FY09 on the back of 11.5 per cent in FY08.

Moreover, while Maruti has launched several models in FY08 including the SX4 and the DZire, the company,and commands a share of about 51 per cent of the car market, has nonetheless faced some keen competition.

It has been losing share to rivals in recent months, though that might change with the launch of the A-Star towards the end of the year and the Splash early next year The A-Star, being built primarily for exports to the European market, should also take on Hyundai's i10 in the home market and could help boost sales.

Meanwhile, the demand for the diesel version of the Swift has been encouraging while the Dzire too has been clocking good numbers. At the current price of Rs 746 the stock trades at 11 times estimated FY09 earnings and any upsides are priced in.

HDFC Bank: A creditable show

With a strong net interest margin of 4.4 per cent, up 10 basis points sequentially, and a smart rise in fee income of 37 per cent, HDFC Bank's pre-provisioning profits were up an impressive 42 per cent in the March 2008 quarter, over the same period in the previous year.

However, thanks to higher provisions and contingencies, up 74 per cent at Rs 465 crore, the net profit growth for the quarter turned out to be 37 per cent "" a tad disappointing because the growth in Q3FY08 had been 45 per cent.

Overall, it's been a fairly good FY08 for the private sector bank, which recently bought over Centurion Bank of Punjab (CBoP) in an all-stock deal.

It has managed to grow assets at about 35 per cent in FY08, with a slight moderation in growth towards the end, in a difficult retail credit environment.

The bank has also managed to garner low cost deposits to fund its growth ""nearly 55 per cent of the bank's deposits comprise cheaper current and savings accounts "" and has possibly been the least affected by rising interest rates.

The loan book remains possibly the cleanest in the business""net non ""performing assets have been consistently low at less than 0.5 per cent.

The general slowdown in the economy should, however, impact HDFC Bank too though with CBoP now in its fold, the bank has access to a bigger branch network, more clients and greater management bandwidth.

The merger should also bring in some cost synergies, though the acquisition itself was an expensive one and will result in a big dilution of the equity.

Besides,the benefits will take their time coming through. At the current price of Rs 1447, the stock trades at just under 4 times estimated FY09 book value and should move in line with the market.