Maruti Suzuki: One-offs offset gains from higher volumes in Q3

Volume growth might stay strong, given existing portfolio's traction

Maruti Suzuki in the  December quarter reported a 15.5 per cent year-on-year (y-o-y) growth in net sales at Rs 12,263 crore, led by 12.4 per cent gain in volumes and 2.7 per cent uptick in realisations. Except for lower sales of Alto and WagonR, most key segments have shown good volume growth. Higher sales of the Ciaz and automatic variants of  the Celerio and Swift helped improve realisations. The van segment, too, is making a comeback, thanks to lower petrol prices.

Maruti has achieved sales growth of 14 per cent for the nine months ended December 2014 but analysts expect it to clock in a 12 per cent growth for FY15. Lower sales in the March quarter would be due to increase in product prices after the withdrawal of excise duty benefits. Last month’s sales were up 21 per cent, thanks to higher discounts and an impending duty rise from this month. While discounts in the quarter at Rs 21,500 a vehicle are higher by Rs 2,000 over the year-ago quarter, analysts believe these are likely to come down as demand improves over the next couple of quarters.

The company has lined up a compact utility vehicle and a crossover for launch over the next year.

While volumes have been strong, Maruti has also benefited from lower raw material prices and yen depreciation, which helped operating margins expand 23 basis points to 12.7 per cent. Raw material costs as a percentage of sales were down 145 basis points to 70.2 per cent. Analysts believe the full benefit of yen depreciation will accrue to Maruti in the March quarter for indirect imports sourced through its suppliers.

One factor that limited margin expansion was the rise in advertising expenses, up Rs 80 crore due to promotions on the Ciaz, New Swift and New Alto K10, among others.

Operational performance would have been better but for the one-time provision related to excise duty on sales tax subsidy, which the company has been receiving over 15 years. Following a Supreme Court judgment, Maruti had to pay about Rs 70 crore. This, coupled with lower growth in other income (up only 10 per cent to Rs 129 crore) and a 150-basis point increase in tax rate to 24.6 per cent, led to the less-than-estimated net profit number of Rs 802 crore. Despite the lower net profit, given the operational performance and planned launches, the stock was up 2.12 per cent to Rs 3,685.