Maruti Suzuki India’s results for the December quarter (Q3) are largely in line with analysts’ expectations.

The company saw a growth of 24% YoY in its net profit to Rs467.04 crore, helped by a 32.8% increase in other income to Rs170.67 crore and a foreign exchange gain of Rs23.6 crore. Excluding the foreign exchange gain, net profit grew 17.8%.

Revenues increased by 27% YoY to Rs4,654 crore, led by a 17% growth in volumes and 10% rise in price realisations on account of better product mix (higher share of Swift and introduction of SX4).

Average price realisations were down 2.6% sequentially, thanks to higher share of Omni in the sales mix and lower share of sedan models.

Maruti’s operating profit margins dipped to 12.74% from 13.42% in Q3 last year. An increase of 29% YoY in raw material costs, higher discounting and higher share of new products in the product mix dented profits.

A growth of 27% in royalty expenses to Rs120 crore — 75% of the models were under royalty against 65.5% in Q3 last year - and a rise of 31% in employee cost to Rs96.75 crore due to commissioning of the new plant also took a toll.

Further, power and fuel costs increased by 50% to Rs 36.4 crore due to 30% increase in fuel costs and ramp-up of the company’s Manesar plant.

Operating profit increased by 20.6% to Rs593.12 (excluding income from services).
At Rs842.60, the stock trades at 12.9 times its estimated earnings for 2009. Valuations at these levels are attractive and most analysts are positive on the stock given the leadership position Maruti enjoys in the industry.

Analysts expect margins to be under pressure for some more time due to higher input costs and product launch costs. Maruti also faces severe competition from other players and hence a pricing pressure thereon, too.

However, they anticipate strong volume growth in the days to come, thanks to the company’s strong product line-up. Maruti is seen playing an important part in Suzuki’s international R&D activities and the same is likely to bring down royalty payouts and development costs going forward.

Source : Dna