Maruti Udyog: In control

Lower steel prices last quarter helped Maruti manage input costs better

Maruti Udyog has reported 17 per cent y-o-y growth in operating profit to Rs 486.16 crore in the March 2006 quarter, despite income from operations growing only 7.7 per cent to Rs 3,277.01 crore.

Operating profit growth has been aided by adjusted consumption of raw materials as a percentage of net sales falling 170 basis points y-o-y to 74.35 per cent in the last quarter.

Analysts say lower steel prices in the last quarter on a y-o-y basis helped the company manage input costs better.

Analysts were also relieved to find that Maruti's purchase from Suzuki of the 30 per cent stake in Maruti Suzuki Automobiles India (MSAIL) was at par. MSAIL, now a 100 per cent subsidiary, will also be merged into Maruti. The stock gained 6.45 per cent to Rs 923.45 on Wednesday.

Maruti incurred a one-time cost of Rs 34.92 crore in Q4 FY06, as it aided dealers, who bought stocks prior to the Budget day, when excise duties on small cars were reduced.

This expense slowed growth in operating profit. Total vehicle sales grew 5.2 per cent y-o-y in the last quarter to 154,400 y-o-y units in the last quarter, despite a 25.73 per cent decline in exports.

In the December 2006 quarter, Maruti's total vehicle sales had expanded 6.57 per cent y-o-y to 145,010 units. In the March quarter, sales growth was once again powered by improved off-take in the A2 segment (Swift, Alto), while sales in the A1 (Maruti 800) segment were lacklustre.

Going forward, the company management raised concerns about rising interest rates and higher state road taxes, which would offset the reduction in excise duties.

The company also plans to go for volume sales, and is planning to ramp up marketing in FY07 to boost market share. Margins are likely to come under pressure as a result of increased marketing expenses and higher royalty payments on the newer models such as Swift.

Depreciation too will go up on account of the MSAIL merger. The stock appears fully valued at about 18 times estimated FY07 earnings.

Siemens: Capex boom

After ABB's strong performance on Tuesday, Siemens too has followed up with a reasonably good performance. As a result of the boom in power and capex sectors, the company has reported 34.75 per cent y-o-y jump in its operating profit (excluding other income) to Rs 121.36 crore in the March 2006 quarter.

However, the company's results for the last quarter were not strictly comparable with the corresponding previous period, as it merged two subsidiaries with itself in April 2005 and October 2004 respectively.

The stock gained 3.8 per cent to Rs 5780 on Wednesday.

Nevertheless, operating profit margin of the merged entity fell 164 basis points to 10.7 per cent in the March 2006 quarter.

Pressure on margins was owing to personnel costs rising 38.67 per cent crore in the last quarter.

In addition, adjusted raw material costs as a percentage of net sales rose approximately 723 basis points y-o-y to 73.65 per cent in the last quarter.

The increase in raw material costs is largely owing to higher cost of non-ferrous metals, say analysts.

In the case of ABB, its operating profit margin rose by 254 basis points y-o-y to 8.64 per cent in the March 2006 quarter.

Total operational income of Siemens grew by 55.4 per cent y-o-y to Rs 1133.35 crore in the last quarter, helped by a sharp improvement in the performance of its power, and automation and drives segments.

Also, new orders jumped 72 per cent y-o-y to Rs 1591 crore in the March 2006 quarter. The stock trades at about 40 times its estimated September 2006 earnings, given the strong growth conditions in the capex sector.