Maruti Suzuki: Racing ahead

Total sales for November went up 26.6%, powered by the growth in the A2 segment

Maruti Suzuki reported excellent sales figures for November 2007 "" its total sales went up by 26.6 per cent y-o-y to 69,699 units over October.

The company sold a record 65,216 units in the domestic market in November 2007, while its previous best in the Indian market was for 64,556 units sold in March 2007.

In the bullish market on Monday, the stock gained 2 per cent. While truck and motorcycle sales are doing badly this year, passenger cars is one segment of the auto industry that has posted impressive growth. In November, the uptick in demand was also helped by Diwali. In FY07, Diwali was celebrated in October.

Maruti's growth in November was powered by a 28.6 per cent y-o-y rise in total A2 segment (comprising Alto and Swift) sales to 47,641 units. The company has also highlighted that the Alto model reported its highest monthly domestic sales of 22,784 vehicles in November.

In the A3 segment (comprising SX4 and Baleno), the company reported an impressive sales growth of 104.5 per cent y-o-y to 4,260 units in the last month.

Even in October 2007, the company's total sales were 69,415 units, a growth of 15.4 per cent y-o-y, despite the higher base last year on account of Diwali sales.

For the first eight months of FY08, Maruti's volumes are up 19.7 per cent y-o-y with 62 per cent growth in the A3 segment and 22.7 per cent increase in A2 segment.

In the September 2007 quarter, the company's total sales had grown 21.3 per cent y-o-y to 191,325 units. In Q2 FY08, higher raw material costs had depressed Maruti's operating profit margin, which fell by 80 basis points y-o-y and 150 basis points q-o-q to 13.1 per cent.

At Rs 1032, the stock trades at 15 times estimated FY08 earnings and 13 times estimated FY09 earnings, and factors in the near-term upsides of better volumes and an improved product mix.

Sintex Inds: Consolidating further

Sintex, which had acquired US-based Wausaukee Composites, in June 2007, announced the acquisition of Nero Plastics, US. Wausaukee, which is the acquiring company, has paid less than 0.3 times Nero's 2006 revenues, and 3.6 times EBITDA (earnings before interest, depreciation and tax).

In comparison with Wausaukee, for which Sintex had paid about 0.9 times sales and 9.5 times EBITDA, this acquisition is cheaper. Wausaukee is a zero-debt company, so raising about $5 million should not be a problem.

The acquisition of the $17.5-million Nero Plastics' will consolidate its position in the US as it will expand Wausaukee's product basket and in turn the user industries. Wausaukee manufactures highly engineered composite components for auto and electrical sectors.

Nero, which is into custom moulding of low and medium volume structural plastic and composite components, will add heavy equipment, mining, heavy truck, mass transit, medical, and sporting good industries to its user base.

Nero also brings significant additional capacity with respect to Wausaukee's core moulding capabilities, and also provides additional competitive strength in a number of moulding processes where it has limited capacity or no prior experience.

In addition to manufacturing, Nero also provides design, engineering, and testing support. Nero has been growing at 15 per cent and has an EBITDA and net margins of 7.6 per cent and 3.5 per cent respectively, which is similar to Wausaukee's numbers.

Wausaukee also announced on Monday that it won a $15 million order to manufacturing 600 wind turbine generator nacelles (the structure that houses generating components such as gear box, drive train etc) over three years, marking its entry into a new industry "" energy.

Sintex has been expanding its product portfolio and industry verticals through acquisitions, which seems to be working. Standalone sales grew 26 per cent y-o-y in Q2 FY08, while consolidated sales were up 46 per cent.

Besides, its standalone operating margin improved by nearly 190 basis points to 22.7 per cent in Q2 FY08. The stock trades at 11 times FY09 earnings.

With contributions from Amriteshwar Mathur and Priya Kansara