For investors with a one-two year perspective, the Maruti Suzuki stock is an attractive bet. With strikes and plant shutdowns behind it, the company is poised to gain from its strong portfolio in the ‘in-demand’ diesel vehicles. Capacity expansion for diesel engines, well-timed entry into utility vehicles and stabilisation in raw material costs are added positives.
At Rs 1,466, the stock trades at about 15 times its estimated earnings for FY14.
In models such as the Swift, Dzire, Ritz and SX4, diesel variants account for over 80 per cent of the total sales. With the Manesar plant now operating at 88 per cent of its capacity, the nearly 1.25 lakh long waitlist for Maruti’s diesel cars will begin translating into faster volume growth.
The inventory of diesel engines built up even as car production was shut down will also speed up the wait list to sales conversion.
Diesel vehicles contribute about 30 per cent of the total vehicle sales of Maruti currently. A rise in diesel vehicle sales will improve realizations and boost margins further, given their higher price points.
Timed Utility Vehicle entry
The launch of the Ertiga (utility vehicle) this year is another shot in the arm for Maruti. With UV sales growing by 55 per cent in April-September 2012, the launch could not have come at a better time.
Even as diesel vehicle sales were affected, the company’s average realisations moved up by 18 per cent year-on-year in the September quarter, thanks predominantly to the presence of Ertiga in the product-mix. Going by the current trend, UVs prove to be a good diversifier to combat a slowdown too.
Financials
For the September 2012 quarter, net sales grew by 8.5 per cent year-on-year to Rs 8,070 crore. Net profits were down by 5.4 per cent at Rs 227 crore, impacted by depreciation and finance costs.
Lower raw materials to sales proportion also helped margins touch 6.1 per cent, compared with 5.7 per cent a year ago. A richer sales mix and lower discounts post the festival season will help improve margins. Risks from adverse yen-rupee movements on imports and royalty payments remain.