The Maruti Suzuki stock gained almost four per cent in trading today after the company announced good results in the quarter ended March 31, 2015. While net sales grew 12 per cent to Rs 13,272 crore over the March 2014 quarter, net profit jumped by a high 60 per cent to Rs 1,284 crore.
The topline growth was ably supported both by a 7 per cent growth in volume and a 5 per cent increase in average realisations year-on-year. A richer product mix from the addition of the Celerio and Ciaz to the portfolio this year propelled this improved realisations.
Several factors have also favoured the company at the operating level, taking the operating margins to 15.8 per cent vis-à-vis 10.4 per cent a year ago.
Benign commodity costs along with the depreciation of the yen against the rupee this period has helped soften raw material costs. The company imports about 15-20 per cent of its raw material requirements, predominantly from Japan. Raw materials as a percentage of sales stood only at 70 per cent this quarter vs 74 per cent a year ago.
New launches
The company has also indicated a lowering of promotional expenses during this quarter. Higher demand, coupled with incremental volumes from new launches such as the Ciaz and Celerio (on which discounts are not available), could have been the reason for the same. Average discounts stood at a high Rs 21,000 in the December 2014 quarter.
Tailwinds from these two factors resulted in robust net profit growth, despite doubling of interest costs and a 77 per cent rise in tax expenses.
Outlook
With domestic automobile sales on a cyclical recovery path, Maruti Suzuki will be a beneficiary of this upturn. Lower inflation and the beginning of interest rate cuts will also help quicken the volume growth for the industry this year.
Maruti has also been able to take on competition and improve its market share in 2014-15. After dipping to below 40 per cent in 2011-12 and 2012-13, its market share inched back to 42 per cent in 2013-14 and is at 45 per cent for the latest fiscal ended March 31, 2015.
The company is also shedding the ‘small car’ maker image, with launches such as the Ciaz sedan and upcoming SUV launches such as the XA Alpha/Vitara , the SX4 S - Cross and Celerio Diesel. A richer product mix as a result of this will further improve realisations and operating margins, as these vehicles have higher price points than small cars.