Volume gains for Maruti Suzuki

Maruti Suzuki India, India’s largest passenger carmaker, has posted better than expected financial results for the quarter ended December.

The company’s total operating revenues increased 62.2% year on year to Rs 7,502.85 crore, due mainly to a lower base. Sales in December quarter last year were lower —- in fact, the quarter was one of the worst for companies, particularly automakers.

A 48.7% increase in sales volume to 2,58,026 units, driven by better credit availability and the government’s stimulus package, also helped revenue growth.

Price realisation increased 9.3% on account of improved product mix, including higher share of the A3 segment and higher exports.

Soft commodity costs and lower manufacturing costs helped operating performance. Operating profit margins expanded by 869 basis points (100 basis points make one percentage point) to 15.11%.

Total raw material costs as a percentage of revenues dropped 465 basis points to 74.5%. Maruti also managed to improve its margins by 239 basis points over the September quarter. The sequential improvement in margins can be attributed to an 8% decline in other expenditure on account of lower manufacturing cost, as the company shutdown a plant for maintenance in December.

Some analysts have upgraded their earnings estimates for FY2010 and FY2011 following the results.

“We have revised our earnings per share estimate upwards by 6% and 8%, respectively for FY10 and FY11 to take into account the exceptional performance during Q3FY10,” Surjit Arora of Prabhudas Lilladher wrote in a note to clients on January 23, 2010.

Strong operating performance led to a 282% year-on-year increase in operating income to Rs 1,133.91 crore. However, net profit increased 221% to Rs 687.53 crore, impacted by a 48% decline in other income to Rs 91.25 crore and a more than four-fold increase in tax outgo (up 313.7% to Rs 326.48 crore).
Last year’s other income included interest on income tax refund.

At Rs 1,445.25, the stock trades at 14.7 times its estimated earnings for 2011. Most analysts are positive on the stock. Going forward, margins are expected to be under pressure on account of higher raw material costs and higher other expenses. Investors could consider the stock on declines.