Maruti Suzuki Benefits From Suzuki Powertrain

In Q1FY14, Maruti Suzuki’s (MSIL) sales volumes declined by 9.96% as compared to Q1FY13. Domestic volumes were down by 6.81% and export volumes by 35.38%. Domestically, sales dropped in most of the segments that the company operates in. The only segments that saw an increase in sales volumes were Mini, comprising of M800, Alto, A-Star and Wagon R, which grew by 3% and Super Compact, comprising of Dzire, which grew by 4.9%.

In Q1FY14, MSIL’s revenues declined by 5.02%. Its Q1FY14 financials include the impact of its merger with SPIL (Suzuki Powertrain India). However, figures for Q1FY13 are pre-merger and do not account for the effect of this merger. This impact is seen in the profitability of MSIL.

In the quarter under review, MSIL’s operating profit grew by 53.65% to Rs 686 crore. This boost was mainly because of a decline in material costs, which reduced by 14.72% on a yearly basis. These costs account for 67% of revenues and thus made the big difference. Material costs were lower in the quarter because of re-distribution of expenses owing to the SPIL merger, cost reduction efforts and favourable impact of foreign exchange. The merger with SPIL also resulted in higher employee costs, higher other expenses and higher depreciation.

MSIL’s net profit grew by 49.05% to Rs 631.61 crore in Q1FY14. Some of the benefits seen in the operating profit were cut out because of higher finance costs and higher tax expenses. This translates into an expansion in its net profit margin of 224 basis points to 6.17% in Q1FY14.

Although profitability saw a major boost in the financials of MSIL, there was no improvement in sales. Consumer demand remained low and volumes and revenues continued to remain affected. The situation will improve only when there is a significant improvement in the industry performance. Until then, the performance of automobile companies is expected to remain subdued.