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Maruti Suzuki India

Maruti Suzuki India - Result highlights.

Maruti Suzuki’s Q3FY2009 results are ahead of estimates after some adjustments.
The net sales for the quarter declined by 1.9% to Rs4,567.6 crore (adjusting for Rs55crore of compensation paid to dealers due to a reduction in the excise duty). The sales volume for the quarter dropped by 14% and the average realisation improved by 14% due to a change in the product mix towards the B and C segment cars.

The operating profit margin (OPM) is lower than expectation. The OPM declined by 649 basis points year on year (yoy) to 6.6% during the quarter. The margin contracted due to a higher cost of raw materials. The depreciation in the rupee against the yen further increased the cost of imported raw materials for the company. This coupled with the higher fuel cost, royalty charges, A-Star launch expenses and an increase in distribution expenses led the operating profit for the quarter to decline by 50.4% to Rs304.3 crore (excluding a foreign exchange [forex] loss of Rs41.2 crore).

The other income for the quarter grew by 22.7% to Rs209.5 crore (after adjusting for an income tax refund of Rs57 crore). Due to a lower interest charge and higher depreciation charge (in line with the revision of the useful life assets in Q4FY2008) the adjusted profit after tax (PAT) declined by 45.9% yoy to Rs252.9 crore in Q3FY2009. After considering the dealer compensation, the forex loss and the refund of income tax, the reported PAT is down by 54.3% to Rs213.6 crore.

The January 2009 volumes are expected to be better. Exports of A-Star have also commenced for the European markets. The initial dispatches would be higher to build up an inventory. Though the demand scenario is weak, the worst may be over in terms of pressure on the company’s profitability.

The management has indicated the Q4 margin will be better as the domestic raw material prices have started coming down. The savings on the raw material front are pegged at Rs4,000 per car. The price of imported steel would reduce from Q1FY2010 onwards.

At the current market price of Rs545, the stock is quoting at 9.3x its FY2010E earnings and at an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 4.7x. Buy the stock with a price target of Rs583.