The Stock Analyst Note is a part of the Stock Analyst Report for Maruti Suzuki. Click here to go to the truncated version of the Analyst Report on the stock. Registered Morningstar users can read the complete PDF (which includes our take on the firm’s valuation, growth and profitability) here.
Maruti Suzuki reported weak first-quarter fiscal 2013 results largely due to unfavorable exchange rate movement. However, we are maintaining our fair value estimate as we remain optimistic about Maruti's long-term prospects given continued strong demand for its Swift, DZire, and Ertiga models as well as better product mix owing to an increasing proportion of diesel vehicles in the firm's overall sales.
Maruti increased first-quarter revenue by an impressive 27.5% year over year, owing to 5% increase in volume (to about 296,000 vehicles) and greater than 20% improvement in net average realizations (revenue per vehicle). We are particularly impressed with this growth in net average realization resulting from an improved product mix as diesel vehicles now contribute about 38% of overall volumes.
We calculate that gross margin improved by 70 basis points from the first quarter of fiscal 2012 to 17%. However, first-quarter operating margin declined by 260 basis points to 4.2% as adverse foreign exchange movement impacted royalty payments by 140 basis points while other manufacturing expenses, including foreign exchange losses, increased by more than 100 basis points.
Maruti's first-quarter net income also declined by 23% year over year because of lower other income and higher interest expense. Maruti's recent Manesar plant shutdown could result in reduced volumes in fiscal 2013.
As we had mentioned in our previous note, owing to the uncertainty of the lockout period, we believe the full impact to earnings and valuation cannot be determined accurately at this point.
However, we expect the company to recoup some of its lost production by the end of this fiscal year by increasing line rates as well as by increasing production of other vehicles manufactured at the company's Gurgaon factory.
We maintain our positive long-term view of the company given the runaway success of its diesel models, Swift and DZire, and its multipurpose.
