The twin concerns of rising input costs and competitive intensity in the space took its toll on Ebitda margins (to net sales) for the quarter, which dipped 200 basis points sequentially to 13.5 per cent even as volumes grew 11 per cent. Net sales surged 12 per cent to Rs 9,119 crore during the period. Material cost to net sales ratio rose to 77.9 per cent compared to 76.2 per cent in the December quarter, although about half of this was due to upgrades of vehicles to BS-IV emission norms, according to a Citibank research report.
It has seen overall market share dip about 430 basis points sequentially to 46.5 per cent in the March quarter.
The management is hopeful that competitive pricing and rural thrust will help drive sales enough for it to regain lost ground. It has also announced a capital expenditure plan to raise capacity to 1.5 million units by June 2011.
Analysts, however, foresee rising margins and bottom line pressures in the medium term, given rising commodity prices. “As a consequence of higher prices of new raw material contracts and strong competition in the passenger car segment (that may not allow the company to go in for significant price hikes), we expect the overall margins to dip by 85 basis points year-on-year in 201011,” says a Sharekhan report.
The stock has dipped from Rs 1,361 pre-result levels to Rs 1,270 on Wednesday and currently trades at about 13.5x consensus analyst earnings per share estimates.
source - business standard
Maruti Suzuki Ltd (updated - 29 April 2010)
Maruti closed the year phenomenally in terms of volumes and sales growth, but saw margins shrink on a sequential quarterly basis, as rising input costs dented the bottom line.
In 2009-10, sales volume grew nearly 29 per cent yearon-year to over one million cars and net sales jumped 42 per cent to Rs 28,959 crore. Earnings before interest, tax, depreciation and amortisation (Ebitda) margins expanded by 470 basis points to 13.7 per cent and net profit more than doubled to Rs 2,498 crore.
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Maruti Suzuki Ltd (updated - 27 July 2010)
The sharp increase in royalty payments by Maruti Suzuki India has surprised the Street and attracted widespread criticism. This comes at a time when operational matrices were also below expectations. Net earnings, at around Rs 510 crore, were lower than the consensus estimates of around Rs 680 crore. Operating profit margins, at around 9.5 per cent, were also less due to increase in raw material costs and an 80-basispoint sequential fall in realisations in the June quarter.
To top it all, the company raised its royalty payments from around 3.5 per cent to five per cent. This made analysts rework their earnings estimates downwards by 1520 per cent. The company’s move also raised questions about corporate governance. With a 54 per cent majority stake, and a royalty payment of around five per cent, there will be little left for the minority shareholders, reckon analysts. It is estimated that the company will pay around Rs 400 crore every quarter, or Rs 1,600 crore annually. “We note that this is even higher than the Tata Motors’ annual research and development (R&D) expense of Rs 1,500 crore.
The Tata group has the biggest range of vehicles, which includes utility vehicles, cars, light commercial vehicles, heavy trucks, buses and defence vehicles. In comparison, Maruti Suzuki sells only small cars, many of which have been in the market for years. Therefore, the royalty expenses charged by Suzuki look very steep,” say analysts at Nomura.
It takes about Rs 500-600 crore to develop a new model in India. Maruti Suzuki is selling two or three new models that have been worked out by the Indian R&D team. Also, the company plans to spend an additional Rs 1,000 crore on R&D and related facilities in FY11. With increased competition from global players in the small-car segment, it will be difficult for the company to maintain leadership. Lower realisations in the current quarter show that pressure on pricing is building up and would only increase from here. With the royalty costs coming into play, more bumps are expected in the days to come.
source - business standard
