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Aided by strong operational performance, Maruti Suzuki's September 2014 quarter results have beat Street expectations. Higher volumes drove the 17.5 per cent year-on-year growth in revenues to Rs 12,303 crore. While volumes were up 16.8 per cent to 0.32 million units, an improving product mix led to an increase in per unit realisations by 0.58 per cent to Rs 3.72 lakh. Strong sales of the Swift and Celerio helped improve the share of the compact segment (Swift, Estilo, Ritz, Celerio) in the overall product mix from 18.9 per cent to nearly 25 per cent of overall volume.
The operating profit margins, however, were pegged back by 26 basis points to 12.67 per cent, due to an increase in raw material costs as well as higher promotional expenses. Raw material cost as a percentage of sales increased 200 basis points to 73.1 per cent on higher forex costs due to indirect imports (sourced through suppliers). Margins would have been lower but for a 110 basis point fall in other expenses to 13.7 per cent on lower royalty to net sales. Nevertheless, these were at the upper band of expectations of 12-12.7 per cent.
In the first half of the financial year, Maruti maintained sales growth of 15 per cent, for the full year, the forecast is conservative at 10 per cent, given the high base of the second half of FY14, indicating growth rates could slow down in the second half of FY15. Buoyed by the response (two to four months waiting period) it has received for the automatic variant of the Celerio hatchback, it is likely to launch an automatic version of the Alto. The company has also lined up the launch of a sports utility vehicle in the June quarter of 2015.
About 80 per cent of analysts have a buy rating on the company, as they expect volumes to be steady on the back of new launches (Ciaz, Celerio), upcoming products, its rural base (32 per cent of FY14 sales) and distribution network. However, the target price of Rs 3,129 means little upside from the current level of Rs 3,240.
