News Analysis

Maruti puts up a good show, backed by strong volume growth

Parvatha Vardhini C BL Research Bureau | Updated on January 15, 2018 Published on April 27, 2017

Dusting off the temporary blip due to demonetisation, Maruti Suzuki’s volumes for the three months ended March 2017 grew at a strong 15 per cent, over the same period last year. Hence, the company was expected to post healthy top and bottom-line growth for the quarter. Maruti Suzuki did not disappoint.

Thanks to the launch of the Ignis as well as the richer product mix from higher segment / premium vehicles such as the Vitara Brezza, Baleno , Ciaz and SX4 S –Cross, average realisation per vehicle for the quarter grew by 4.6 per cent. This helped the company post a 20 per cent growth in net sales to Rs 18,005.2 crore for the January – March 2017 period.

Operating margins

But higher raw material costs and adverse forex movements played spoilsport at the operating level. With commodity prices reversing from the rock-bottom levels it touched a year ago, raw material costs ( including stock in trade) as a percentage of net sales inched up to 73.8 per cent. It was 68.6 per cent a year ago. Operating margins hence came in lower at 13.8 per cent, in comparison with 15.1 per cent a year ago. This is probably why the stock has lost a bit of sheen following the results announcement.

Despite the pressure at the operating level and lower other income, a fall in depreciation and taxes compared with the year-ago period helped shore up bottom-line. Net profit for the company grew by 15.7 per cent to Rs 1,709 crore for the quarter ended March 2017.

Outllook

With both rural and urban consumption looking up, the company is expected to continue post healthy volumes in the months to come. A refreshed Dzire will be launched in May 2017. Besides, a petrol variant of the Vitara Brezza and a refresh of the Swift and Wagon R are also expected. With Suzuki’s Gujarat facility becoming operational, existing capacity constraints and hence long wait periods for certain models will ease. At the same time, margins may see some downside, considering that Maruti will be trading in fully built cars bought from Suzuki.

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