Maruti Suzuki: Back In Action And Gearing Up

Maruti Suzuki (MSIL) announced its Q2FY13 results on Tuesday, Oct 30, 2012, after being drastically affected by the recent events at its Manesar plant. While the street was expecting subdued financials for this quarter, the company surprised investors with relatively better numbers. MSIL’s stock price was trading lower ahead of the result, but with the announcement, the stock touched an intraday high of Rs 1419.85 a piece, up by 4.13%. Post announcement, the stock is trading at a 52-week high. The result, though displaying moderate sales growth and pressure on margins, was indicative of recovery and of growth bouncing back in the coming quarters.

 Q2FY13 Sales Volume

The Manesar incident halted operations at the plant from July 18, 2012, and production remained hampered for more than a month. Inventories eventually dried out, resulting in increased waiting periods. August was heavily impacted, where the YoY sales of MSIL dropped by 40.80%. This resulted in a drop in sales YoY to the extent of 8.69% in Q2FY13. Though MSIL has now managed to regain normal production levels of 1600 units per day at the Manesar facility, its Q2FY13 sales have definitely been affected.

Q2FY13 Result

MSIL posted a growth of 8.53% in net sales, with the figure rising to Rs 8,070.11 crore in Q2FY13 from Rs 7,435.85 crore in Q2FY12. The margins, however, were drastically affected. The company posted a net profit of Rs 227.45 crore for Q2FY13 as opposed to Rs 240.45 crore in Q2FY12, lower by 5.41%. Though there has been a softening in global commodity prices, the margins were severely affected due to higher spending on sales promotion, lower non-operating income, adverse currency movement and greater depreciation.

Demand & Sales Trends

Having worked on ramping up production after facing major headwinds, MSIL has caught up with the rising demand and managed to bring sales at par in H1FY13 as compared to H1FY12. MSIL has been seeing healthy demand on account of the festive season. According to the management, overall momentum has caught up not only sequentially but also on a YoY basis.

Moreover, the order book stands healthy due to the earlier lockdown, and the current situation stands at a waiting list of 1.25 lakh diesel vehicles and no waiting for petrol vehicles. The distortion in demand for diesel and petrol vehicles has been a result of the disparity between the prices of the two fuels.

In terms of models, MSIL has received a tremendous response for the newly-launched Ertiga. The company has been capturing the opportunity offered by changing automobile demand trends that have been skewed towards Utility Vehicles. The launch of Alto 800 too came augured well for the company, and the model invited 30,000 bookings in a very short time. The sales of these cars would add up to the upside, and the results would be visible in Q3 and Q4.

The Way Ahead

Q3 and Q4 are expected to fare well as a result of the success of Ertiga and Alto 800, order build up on account of the production halt, a boosted demand for diesel vehicles, the average price increase of 1% to take effect and due to the festive season being a seasonally robust time for automobile sales. However, MSIL’s margins are expected to remain tight on account of higher employee expenses, all-time high discounts as well as currency fluctuations affecting raw material costs and royalty payments. At the same time, the company is making efforts towards increasing localisation and reducing costs and overheads to improve efficiency, which may relax margin pressures to some extent.

It seems that MSIL has managed to crawl out of the crisis it recently faced and is poised to stand and move ahead.