Maruti Suzuki: Facing roadblocks

Volume growth of 25 per cent, along with a 2 per cent rise in realisations due to a superior product mix, helped Maruti Suzuki record a 27.3 per cent year-on-year rise in revenues to ₹21,811 crore in the quarter-ended June 2018. The company saw some pressure on operating margins from the depreciation of the rupee versus the yen and a rise in input prices.

Yet, cost-control efforts, along with lower advertising expenses, helped margins expand to 14.9 per cent from 13.3 per cent a year ago. Operating profits grew by 43 per cent to ₹3,351 crore. Lower other income, which dropped 60 per cent, as well as a 22 per cent rise in taxes prevented this robust performance from reaching the bottomline. Thus, despite a strong show on the operational front, net profits grew only by 27 per cent to ₹1,975 crore. Given the rise in commodity prices and the rupee depreciation, operating profits and margins may come under pressure in the coming quarters. While many automakers have announced price hikes to cover cost increases, Maruti is yet to bit the bullet.

 

With the stock climbing steadily upwards, thanks to robust performance in the last few quarters as well as strong growth expectations, the trailing PE stands at 34.5 times higher than the three-year average of 29 times.

Lower-than-expected profit growth already prompted a 3.7 per cent fall in the stock last Thursday after the results announcement.

 

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