Maruti Suzuki: On a roll

India’s biggest car maker has sold a bigger share of more profitable cars and also exported more in the September 2009 quarter. This has pushed the operating profit margin (opm) up by 70 basis points sequentially to 11.9 per cent. With governments offering scrappage incentives, the demand for small cars in the overseas markets was strong and Maruti’s exports increased 109 per cent year-on-year. That drove the company’s top line up by a smart 47 per cent year-on-year.


While the export story should continue to fetch profit with about 70 per cent of export revenues now earned from the European markets, the company’s focus on rural markets too is paying off. With rural spends less affected by the slowdown in the economy, Maruti was able to sell more cars in the hinterland raising the sales volume in the home market by20 per cent year-on-year. Compared with 12 per cent in 2008-09, analysts estimate that the rural markets now fetch the company approximately 16 per cent of revenues.

Business is clearly looking up in urban markets too — volumes in the top 10 cities were up 8 per cent in the September quarter, compared with a marginal fall in the June quarter. That apart, consumers are now able to access loans more easily.Currently, about 70 per cent of the sales come through financing schemes, compared with 66 per cent at the end of the June quarter. With the macroeconomic environment now improving, industry watchers estimate that volumes in the home market can grow by about 16-17 per cent in the current year, though the momentum may slow down next year with volumes growing at 12-13 per cent.

While there was some concern relating to the sales during the month of September, which were a tad disappointing especially in the home market, some of that was because of production constraints. Nevertheless, models such as SX4, D’zire and Ritz continue to be extremely popular. Also, with the economy now recovering, sales will pick up in the second half of the year.

Maruti is expected to grow its earnings per share by about 20-25 per cent in 2010-11. At Rs 1,502, the stock trades at 16 times estimated 2010-11 earnings.