Maruti Suzuki Sees Marginal Growth In Q3, Net Profit Up By 1.6%

The passenger vehicle major, Maruti Suzuki (MSIL), announced its quarterly result for Q3FY14 during the market hours today. The company also announced its board's decision on Gujarat project immediately after result announcement. The stock of MSIL closed at Rs 1563, down by more than 8 %.

Surprisingly, MSIL's net profit increased by 36 % on yearly basis, its revenue was down by marginal 2.74 % on yearly basis. The MSIL's revenue stood at Rs 10894 crore in Q3FY14 against Rs 11200 crore in Q3FY13. The company's net profit stood at Rs 681 crore during Q3FY14 against Rs 501 crore in Q3FY13. However, on sequential basis, MSIL's result scenario is completely different. MSIL managed to grow its net profit only by 1.63 % while its revenue grew by marginal 4 % on sequential basis for the said quarter.

On operational front, MSIL showed decrease of 4.41 % in overall volume growth on yearly basis. Further, the growth in domestic vehicles volume was almost flat on yearly basis. However, the export volume slumped by 38.56 % during the said period on yearly basis. There is major worry for the company as the export volume also decreased by 41.32 % on sequential basis. However, there are some positives on domestic volume growth for MSIL which was almost 11 %.

On expense side, MSIL's operating expenses grew by 52 % on yearly basis. The employee benefits and other expenses during the said quarter have seen major growth compared to same period last year. However, the company's raw material cost was down by almost 16 % on yearly basis. MSIL's depreciation cost showed continuous increased trend for last few quarters. The incremental depreciation cost alarms about the capital expenditure despite of subdue sentiments over Indian automobile industry. Despite all increased cost for the company, MSIL's profit increased by 36 % on yearly basis only because of higher localisation, favourable foreign exchange and cost reduction initiatives by the company.

In an interesting move, MSIL also announced that the Gujarat plant will commence its operations by 2017, but it will be fully owned by parent company, Suzuki. This unit will manufacture and sell vehicles only to MSIL and the pricing of vehicles will be the cost of manufacturing and capex. Though the MSIL management explains that the parent company wants a win-win situation for MSIL's shareholders, the event has created concerns over MSIL's corporate governance among the investor fraternity.

Though the Indian automobile industry is struggling to find some growth across all segments, we expect MSIL will continue to do better in coming few quarters as there are early signs of recovery in domestic market. However, the MSIL board's decision over Gujarat plant is expected to create negative sentiments over the stock. However, we are still confident over MSIL's long term prospects despite of today's 8 % slide during trading hours.