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Company Notes: Maruti Suzuki (Oct-Dec 2015)

This is a follow on post of Maruti Suzuki based on the financial results declared on the 28-Jan-16. We have captured a few essentials of the earnings call and at the same time incorporated the Q3 numbers into our earlier post (Company Notes: Maruti Suzuki). You can also check out the Maruti Suzuki Financial Results Q3 and A summary of the Nifty 50 results.

Here is what the company had to say:

  • Sales growth was affected by strong demand for Baleno and the new technology in Ciaz
  • Industry saw a ban of >2000 cc and we noticed a significant shift in customer demand for petrol engines
  • Petrol vehicle sales grew from 54% to 56% YTD while Diesel vehicle sales fell from 46% to 44% YTD
  • Sri Lanka was a major market for exports. However, the recent increase in the duties will make it difficult
  • Sale of Baleno to Europe and Japan will compensate the sales for Sri Lanka

Maruti_Suzuki_Results_Results_3

A few salient points of the call:

  • Increase in Employee Benefit Expense: The Payment of Bonus (Amendment) Bill, 2015 was passed by the Parliament in the just concluded Winter Session of the Parliament. Since the provisions of the Payment of Bonus (Amendment) Act, 2015 shall be deemed to have come into force on the 1st day of April, 2014 (retrospectively) the company has had to make provisions for 21 months and going forward the provision would be required for current period which would be very less. The impact would be a 15 basis point only. However, in Q2 there were certain provisions (impact of 40 basis points) in the earlier part of the year which were no longer required now and hence the increase in Employee Benefit Expense.
  • Marketing Expense: Though numbers were not disclosed, the company expects the marketing expenses to go up significantly as the company believes advertisements have brought in good sales. This can be seen from the fact that Rural sales grew by 15% and it currently accounts for more than 30% of the total sales. There was an increase in promotional expenses (with an aim to clear the 2015 stock).

Maruti_Suzuki_Results_Expenses

  • Discounts: Discounts for Q2 and Q3 were Rs. 19,578/- and Rs. 21,997/-per car. An increase of Rs. 2,400/- per car. Last year they were at a level of Rs. 20,401/-.  50 basis point of commodity benefit were offset by the higher discount.
  • Forex Exposure: Royalty for the current quarter stood at 6%. Yen currently accounts for 15% in terms of Direct Exposure and 21-22% in Indirect Exposure. Additionally exports of Baleno to Japan will act as a natural hedge. However, the company would be exposed to the rate fluctuations from the vendor side. The company is also increasing its localisation of most of the materials barring electronics which will take some more time.
  • Inventory & Capex: At the end of Q3 the company had less than 4k units due to very high sales during Christmas and New Year compared to an avg. inventory of 20-25k units every quarter. Also given the fact that all 2015 manufactured units had to be cleared off before 2016, the conversion cost for this quarter was very negligible. During Q2, a significant amount of conversion cost got uploaded to the net material cost.
  • The maintenance of the Gurgaon plant was performed during June, 2015 for which the company incurred a cost of Rs. 70 cr. Maximum production in FY15-16, this year would be targeted between 1.56 and 1.6 million units with some short term measures. Gujarat plant is on track to break operations in March-2017 with a capacity of 250k units in Phase 1.
  • PMT capacity has gone upto 10k per month and the company is aggressively marketing this feature. Currently the capacity is more than what the market needs.

You may also be interested in reading “Japan’s Desperate Move: Negative Interest Rates” as we continue to monitor its impact on the share price of of Maruti Suzuki.

Maruti_Suzuki_Share_Price

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Disclaimer

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Disclosure: The authors at Capital Mind have positions in the market and some of them may support or contradict the material given above, or may involve a direction derived from independent analysis.

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