Maruti Suzuki India Limited, a subsidiary of Suzuki Motor Corporation of Japan, is the leader in the Indian car market with 54% market share. The company has State-of-the-art Manufacturing Facilities at Gurgaon located some 25 km south of New Delhi & has also commissioned a plant at Manesar. Maruti Suzuki has a sales network of 681 state-of -the-art showrooms across 454 cities, with a workforce of over 15000 trained sales personnel.

Quarterly Results ---- Revenues and profits above our Expectations

•    Maruti declared its Q1FY10 results which were above our expectations on both the revenue and the profitability front. The company reported revenues of Rs. 6340.3 crores which were above our expectations as against Rs. 4753.6 crores in Q1FY09 i.e. a rise of 33.4% on a YoY basis and Rs. 6308.4 crores in Q4FY09, a marginal growth of 0.5% on a QoQ basis.

•    Operating profits for Q1FY10 were Rs. 793.2 crores from Rs. 570.3 crores in Q1FY09 up by 39.1% on a YoY basis and Rs. 449.3 crores in Q4FY09 registering a flamboyant growth of 76.5% on a QoQ basis.

•    PAT was up by 25.3% at Rs. 583.5 crores from Rs. 465.9 crores on a YoY basis while on a QoQ basis the growth was 140% from Rs. 243.1 crores in Q4FY09.

Higher average realization and cost reduction leads to a growth in the EBIDTA margins

The EBIDTA margins of the company stood at 15.6% as against 8.6% in Q4FY09 a rise of 692 bps. The company has been focusing on a product mix which generates higher average realization which is up by 4.5% mainly owing to the models, Ritz and A-Star. The currency movement has also improved the margins of the company. The material cost decreased from 80.5% of net sales in Q4FY09 to 78.1% in Q1FY10 due to various cost reduction and innovation programs and the impact on the vendor imports. There was a 230 bps improvement due to the foreign exchange variation in the manufacturing and administration cost.

The royalties of the company has gone up from 2.9% in Q1FY09 to 3.6% in Q1FY10. This is due to the foreign currency fluctuations as well as the increased sales of the royalty basis models of the company. The interest expenses of the company has reduced 62.5% on a YoY basis from Rs. 16.8 crores in Q1FY09 to Rs. 6.3 crores in Q1FY10.

Performance Analysis

Maruti maintained its leadership position in the market reporting the highest ever sales in the current quarter. The company sold 226729 units of cars in Q1FY10 as compared to 192584 units in Q1FY09, a growth of 17.7%. The year saw the launch of  A Star  the concept car from their stable  which is mainly exported to European countries which led to a 135% growth in exports for Q1FY10 as compared to Q1FY09.

Model wise Break up of Sales

In the A1 category comprising of Maruti 800 the downward journey continued with a 57.2% slide in the sales numbers, however the A2 segment comprising of Alto, Wagon R, Zen, Swift, A-Star and Ritz showed a growth of 17% YoY. However the biggest breakthrough in the year was the sales numbers of A3 segment which cloaked a growth of almost 25.1% on a QoQ basis. The C segment comprising Omni and Versa saw a marginal growth of 7.1% on a YoY basis, where as MUV segment the sales in this segment went up by 5.1%. Exports grew 134.7% on a YoY basis recording the highest ever growth mainly driven by the export of A- star which alone comprises 90% of the total export sales.

Valuation & Recommendation

At the current price of Rs. 1290 per share, Maruti is currently available at 18.1x FY10E & 13.3x FY11E. We expect the company to earn a ROCE of 24.7% in FY10E & 28.6% in FY11E. At Rs. 1290 per share the stock is trading at a discount of 14.4% from our intrinsic price of Rs. 1475 per share. We believe that though the company being a leader in this segment & having more than 50% of market share, the competition is increasing in the A2 & A3 segments which are the major revenue earners for the company. We believe the company will record a volume growth of around 13% for FY10. But higher price realisation due to better product mix will help the company to improve its profit margins. We recommend a HOLD on the stock with a price target of Rs. 1475 per share.