Maruti Udyog: Pleasant drive

Maruti-Suzuki deal will ensure greater transparency in operations

Maruti Udyog's buyout of Suzuki's 30 per cent stake in Maruti Suzuki Automobiles India (MSAIL), which houses the car plant in Manesar, and the subsequent merger with itself is good news for shareholders.

At present, Maruti holds 70 per cent in MSAIL. With inter-company transactions being ruled out, there will be greater transparency in the operations.

Moreover, the entire profits of MSAIL will now accrue to Maruti. Not surprisingly, the stock was up 3 per cent in an otherwise weak market.

Earlier the manufacturing unit resided in MSAIL with MUL taking on the responsibility of marketing, sales and R&D functions.

The question remains as to the price at which MUL will buy the stake from Suzuki Motor Corporation (SMC). A fair price would be the book value since the company is yet to start production.

The total investment in MSAIL is in the region of Rs 1500 crore so it would appear that Maruti would have to fork out around Rs 450 crore, which will not be difficult.

With the Manesar plant, which is expected to go on stream towards the end of the year, Maruti's capacity will go up from 6 lakh units to 7 lakh units by end of CY06.

This plant will eventually produce 2.5 lakh cars. More important, Maruti will also be in a position to roll out diesel vehicles, once its other joint venture with SMC "" Suzki Powertrain India""- starts making engines.

That would plug the gap in its portfolio and put the company in a strong position vis a vis competitors. Thus, the stock appears attractively valued at Rs 841, which discounts its estimated FY07 earnings 16 times.

Mastek: Managing costs

Despite a growth of just 3.5 per cent q-o-q in its consolidated sales to Rs 177.37 crore, Mastek has managed to control costs to post a 12.56 per cent increase in its operating profit to Rs 32.36 crore in the March 2006 quarter.

Last month, Mastek tied up with France-based Euriware to work together. The two companies will jointly bid for business in France and target a turnover of 35 million euros (over Rs 185 crore) in three years.

Mastek will also set up a development centre for Euriware and employ 450-500 people. The other major development during the quarter was Mastek signing a 10-year licence agreement with Capita Life & Pensions, UK where Capita will use Mastek's insurance solution Elixir to provide services to its insurance client Zurich Life.

Mastek will receive one-time revenue for the licence and also for customising the product to suit the requirements. For a mid-sized company like Mastek, such tie-ups will help in pushing up the top line.

The company also increased the proportion of US revenues in total income by 175 basis point q-o-q to 19.75 per cent of operating revenues.

In its guidance, Mastek expects a revenue growth of 0.8-3.6 per cent and a 12.7-18.5 per cent net profit growth in the June quarter as compared to the March quarter.

The company has managed costs quite well in the past few quarters, and given that its salary revision is expected only in the July-September quarter, it just might reach the ambitious net profit target.

The stock gained over 6 per cent to Rs 381 in a weak market on Thursday. The improvement in the outlook and the fact that the Mastek stock trades at about a 25 per cent discount to other mid-tier companies indicates some further upside.