Maruti Suzuki Posts Below Estimate Results

Maruti Suzuki (MSIL), a major in passenger vehicle sector in India, today released its scorecard for the March'14 quarter and year end performance. For the financial year 2013-14, the company registered a growth of 15% in its consolidated bottomline. It stood at Rs 2832 crore for FY14 against Rs 2449 crore in FY13. But the consolidated revenue posted a muted growth on revenue front at Rs 44450.6 crore on yearly basis.

Further, MSIL’s operating income for FY14, improved by 20% at Rs 5204 crore on yearly basis, backed by the drop in operating expenses, which decreased mainly due to the reduction in cost of material consumed. Interestingly, due to MSIL's cost reduction together with localization initiatives, the margins improved during FY14. Operating margin and net margins expanded by 194 basis points to 11.71% and 84 basis points to 6.37% respectively.

However, for the March ended quarter for FY14, MSIL financial performance remained below street expectations. The company's revenue in Q4 dropped by 9% to Rs 12101 crore while its net profit narrowed down to Rs 800 crore by posting a decline of 35% on Y-o-Y basis.

On volumes front, the total volume sold by MSIL during Q4 decreased by 5.5% to 324870, of which, the domestic sales stood at 298596 with a drop of 3%, both on Y-o-Y basis. Lower volumes, higher promotional expenses and the stock compensation to dealers led the margins to drop during the quarter. Operating margin contracted by 472 basis points to 10.3% and net margin contracted by 271 basis points to 6.6%.

The company gave a dividend of Rs 12 per share for FY14. After, the disappointing numbers announced by MSIL for Q4FY14, its stock price dropped by 1.4% at Rs 1956 in today's trading session.

MSIL stock is currently trading at a PE ratio of 24x. MSIL’s major revenue (about 90% ) is driven from the domestic market. Though the company Q4FY14 performance was not as per the expectations, we recommend investors to remain invested into the stock, as the domestic market has started showing early signs of revival which will boost the company's volume growth in coming quarter.