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.

Maruti declared its Q4FY09 results which were in line with our expectations on the profitability front. The company reported revenues of Rs. 7097.4 crs which were in line with our expectations, as against Rs. 5585.9 crs in Q4FY08 i. e. 27% rise YoY basis and Rs. 5165.71 crs Q3FY09, a 37.4% rise on QoQ basis.

Operating profits for Q4FY09 were Rs. 554.7 crs from Rs. 762.7 crs in Q4FY08 down by 27.3% on YoY basis and Rs. 474.5 crs in Q3FY09 up by 16.9% on QoQ basis.

PAT was down by 18.4% at Rs. 243.1 crs from Rs. 297.9 crs on YoY basis. However on the QoQ basis the PAT was up by 13.8%.

Adverse movement in the foreign currency leads to a 572 bps fall in Operating Margins in Q4 FY09. The operating margins of the company stood at 9.3% as against 15.0% in Q4FY08 a fall of 572 bps. Losses were incurred by direct and vendor imports on account of foreign currency movement showing an increase of 410 bps in the total material cost. The royalty paying models composition in the total sales was up from 76% to 85% thus increasing the manufacturing cost by 180 bps. Thus there was an adverse impact due to the fluctuations of Yen. The total impact due to the foreign exchange movement was Rs. 121 crs.

Higher operating expenses lead to a fall in EBIDTA margins in FY09 by 500 bps The EBIDTA margins of the company were down by 500 bps on account of increase in the operating expenses. The material cost was up by 337 bps on account of the commodity price increase and the forex impact on direct and indirect imports. However, the company expects the fall in the commodity prices witnessed in Q4FY09 to have an impact in Q1 and Q2 FY10 due to the lagging effect. The company had a loss of Rs. 133.8 crs due to forward contracts thus impacting the increase in the manufacturing cost. Also, the running royalty was higher by Rs. 190 crs so the total manufacturing and admin cost was up by 170 bps.

FY2009 Results ???? Revenues and profits in line with our Expectations

For the Full year ended March 2009, Maruti recorded revenues in line with our expectations of Rs. 24244.9 crs as against Rs. 22569.4 crs in FY2008, a rise of 7.4%. The operating profit stood at Rs. 2469.0 crs as against Rs. 3212.5 crs in FY2008, a decline of 23.1%. The net Profit for the Year was Rs. 1224.3 crs as against Rs. 1799.5 crs in FY2008, a decline of 32%. The net profit was down basically due to the losses incurred due to the foreign currency fluctuations in Q1 and Q2 FY09 which have a lagging effect and is visible in the Q4FY09 results. The Hedge reserve of the company stands at a negative Rs. 170 crs as on 31st March, 2009.

Model wise Break up of Sales

In the A1 category comprising of Maruti 800 the downward journey continued with a 29% slide in the sales numbers, however the A2 segment comprising of Alto, Wagon R Zen & Swift showed a marginal growth of 2.4% YoY. However the biggest breakthrough in the year was the sales numbers of A3 segment which due to the advent of SX4, cloaked a growth of almost 53.9% on YoY basis. The C segment comprising Omni & Versa saw a 13.1% YoY decline, where as in the current year in the MUV segment the sales in this segment went up by 91% YoY. Exports grew 32.1% in the current year recording the highest ever export sales of 70023 units of cars mainly driven by the export of A? star which alone recorded the sale of 19000 units in Europe including United Kingdom, France, Germany, Italy, Netherlands, Denmark and Switzerland.

Valuation & Recommendation

At the current price of Rs. 800 per share, Maruti is currently available at 11.6x FY10E & 10.4x FY11E. We expect the company to earn a ROCE of 24.6% in FY10E & 23.6% in FY11E. At Rs. 800 per share the stock is trading at a discount of 3.3% from our intrinsic price of Rs. 826 per share which we feel is perfectly valued. 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. The company will also face some competition for Alto the largest selling car of the company from Nano. We believe the company will record a moderate volume growth of 7?8% for FY10 with more emphasis on Swift, Swift dezire & SX4. At the current valuations the stock now looks fairly valued. We therefore believe the stock will underperform the markets.