5 key takeaways from Maruti results

Against an expectation of Rs 950 crore, Maruti Suzuki posted a profit of Rs 800 crore. Naturally, the stock reacted negatively falling by over 3% immediately after the announcement. The company had posted a profit of Rs 1,239.62 crore in the same quarter last year.

 

Following are the five key takeaways from Maruti's results:

 

1. Maruti’s lower-than-expected performance started from its sales numbers and trickled down to its net profit. The company sold fewer cars both in the domestic as well as exports market. As compared to 343,709 cars in March quarter 2013, the company sold 324,870 cars in March 2014. 

 

The numbers were higher than the December 2013 quarter when the company sold 288,151 cars. As a result, the revenue stood at Rs 1,312,754 crore against Rs 1,471,757 crore in March 2013 and Rs 1,089,384 crore in December 2013.

 

2. On top of lower revenue, the company did poorly on the operating front as well. Its operating margin fell to 10.3% compared to 15.03% last year and 12.44% in the previous quarter. 

 

The company management has said lower margin is on account of higher advertisement. As this higher ad-spend did not result in higher sales, the company had to absorb the cost. Additionally, the company had to compensate to dealers owing to the reduction in the excise duty.

 

3. As in the case of Reliance Industries, other income plays an important role in contribution to the company’s profits. For the March 2014 quarter, other income component of Rs 406.62 crore was 38.84% of its profit before tax as compared to 26.42% in March 2013. Maruti is sitting on Rs 8,800 crore of cash after paying Rs 12 per share of dividend. 

 

4. The company plans to launch three new car models in the current fiscal but does not expect dramatic sales growth during the fiscal.

 

5. With regards to its decision on setting up a manufacturing unit in Gujarat through a subsidiary, the company said it will now be spending Rs 3,000 crore more in lieu of not marking up the sale price from its subsidiary to Maruti Suzuki.

 

In short, nothing to be excited about in the results especially given the guidance and expectation of a poor monsoon.