Maruti falls 12.31% on poor quarterly results

Industry experts downgrade; reduce earning estimates for FY11.

The Maruti Suzuki scrip plunged 12.31 per cent, or Rs 167.20, to Rs 1,191.05 on Monday on the Bombay Stock Exchange (BSE) due to the company’s poor quarterly results.

On Monday’s free fall brought the stock close to its 52-week low of Rs 1,145.40 (in July last year). The stock had touched a high of Rs 1,434 on June 30. During the day, the shares touched a low of Rs 1,185.25.

Maruti’s net profit for the June quarter declined 20 per cent to Rs 456.36 crore against Rs 583.54 crore in the corresponding quarter a year ago. The company’s net profit has fallen for the first time in the last five quarters (after the March quarter of FY09).

The car maker was hit by rising raw material costs, an increase in royalty payments to its parent company, Suzuki Motor Corporation, and a weakening euro that hurt export revenues.

Maruti Suzuki and State Bank of India accounted for nearly 31 points fall in the Sensex, which fell 111 points.

NOT SO GOOD SHOWING PERFORMANCE OF MAJOR AUTO TOCKS
Company	Chg (%)
Maruti Suzuki	-12.31
Hero Honda	-7.46
Tata Motors	-2.24
Bharat Forge	-1.60
Ashok Leyland	-1.58
M & M	-1.16
Bajaj Auto	2.33
Source : Bombay Stock Exchange

Brokerages downgraded the stock from ‘buy’ to either ‘hold’ or ‘sell’. Citigroup Global Markets downgraded Maruti from ‘buy’ to ‘hold’ and cut earings estimates by 21-25 per cent.

“Escalating competition in the high-volume A2 segment has negatively affected Maruti’s market share. However, introduction of new models and a lower cost of ownership, combined with wide sales, will help the company in the long term,” Citi said in its report.

The royalty payment by Maruti increased from an average of 3.5 per cent to five per cent of sales.

“This will have a direct negative impact of 150 basis points on earnings before interest, taxes, depreciation, and amortisation margins going forward,” said a report by Kotak Securities.

Industry analysts estimate that an increase in royalty charges will mean an additional annual payout of Rs 500 crore for the company.

Among sectoral indices, Auto Index was beaten down the most on Monday; it dipped 3.25 per cent.

Other auto stocks that were hit were Hero Honda, down 7.46 per cent, or Rs 146, followed by Tata Motors, down 2.24 per cent. The only auto stock which closed positive on Monday was Bajaj Auto; the scrip gained 2.33 per cent, or Rs 57.50.

The Sensex closed at 18,020.05 on Monday, down 110.93 points.