Maruti Suzuki's financial performance in the third quarter of the current financial year was aided by solid sales growth, favourable foreign-exchange movements, and lower material costs.
IHS Automotive perspective | |
Significance | Maruti Suzuki has reported a 17.8% year-on-year (y/y) increase in net profit for the third quarter of fiscal year 2014/15 to INR8.02 billion (USD130.4 million). Total income from operations stood at INR125.76 billion in the quarter, up 15.4% y/y. |
Implications | Although the automaker is preparing to expand into new segments, it is not leaving its traditional bastion of small cars unattended. Following the launch of the next-generation i20 by Hyundai in August, Maruti has refreshed its strong-selling Swift hatchback. |
Outlook | IHS Automotive believes the automaker's move to expand into segments where it is weak or simply absent is a positive development. |
Maruti Suzuki has reported a 17.8% year-on-year (y/y) increase in net earnings for the third quarter of fiscal year (FY) 2014/15. In a statement sent to IHS Automotive, the automaker said that net profit for the latest period stood at INR8.02 billion (USD130.4 million), up from INR6.81 billion in the same period last year. This was aided by a 15.4% y/y increase in total income from operations to INR125.76 billion. The growth in income from operations was aided by a 12.4% y/y surge in vehicle sales. In the quarter, the automaker sold 323,911 vehicles, including overseas shipments of 28,709 units. "Higher volumes, material cost reduction initiatives and favorable foreign exchange contributed to bottom-line during the quarter," the company said in a statement.
In line with growing sales, the company's operating earnings before interest, tax, depreciation, and amortisation (EBITDA) shot up 17.6% y/y to INR15.93 billion in the period. The effect of higher employee costs and other expenses was more than offset by reductions in material costs. As a result, the EBITDA margin improved 20 basis points to 13% in the quarter despite higher discounts.
For the nine-month period, the automaker's earnings increased 22.4% y/y to INR24.27 billion. The growth in earnings was made possible by a 14.7% y/y increase in total income from operations to INR362.49 billion. Vehicle sales in the nine-month period stood at 945,703 units, up 13.9% from the 830,171 units sold in the same period the year before. The figure includes overseas shipment of 92,171 units, marking a growth of 22.8% y/y.
Maruti Suzuki's financial performance | ||||||
Q3 FY 2014/15 | Q3 FY 2013/14 | % change | Nine months FY 2014/15 | Nine months FY 2013/14 | % change | |
Revenue (INR, bil.) | 125.76 | 108.94 | 15.4 | 362.49 | 315.99 | 14.7 |
Sales (units) | 323,911 | 288,151 | 12.4 | 945,703 | 830,171 | 13.9 |
Net income (INR, bil.) | 8.02 | 6.81 | 17.8 | 24.27 | 19.83 | 22.4 |
Outlook and implications
On the cost front, the automaker did well in controlling expenses. Total expenses in the latest quarter went up 15.2% y/y to INR116.11 billion, allowing an 18.6% y/y growth in profit from operations before other income, finance cost, and exceptional items. Further tailwinds were propelled by a 33% y/y reduction in finance costs. Interest outgo in the quarter stood at INR300.2 million, down from INR448 million in the third quarter of the previous fiscal year. These benefits were partially offset by a sharp increase of 27.9% y/y in taxation which amounted to INR2.61 billion in the quarter.
The company's revenue growth of 15.4% in the quarter kept it ahead of the 14.7% growth seen in the nine-month period. This growth was achieved with a 12.4% increase in sales volumes. Playing an important role in increasing sales volumes was the sharp jump in overseas shipments. However, quarterly net income growth of 17.8% y/y indicates that the momentum seen in earlier quarters may be waning.
The results underline the company's efforts to optimise the excise-duty benefits by boosting production towards the end of the calendar year (see India: 8 December 2014: Hyundai, Honda join Maruti in boosting production ahead of excise benefit expiry). The benefits, offered by the outgoing government in February 2014, expired on 31 December 2014. In the quarter, the company also refreshed its best-selling Swift hatchback, keeping the model updated and contemporary (see India: 29 October 2014: Maruti Suzuki launches refreshed Swift with enhanced fuel efficiency).
Following the successful launch of the Celerio hatchback at the beginning of the calendar year, Maruti has much in its favour and more products to offer. Other models in the pipeline include the S-Cross crossover, expected to be introduced in 2015, as well as the Swift-hatchback-based crossover that is likely to launch in the subsequent year. Similarly, the new Carry van and its truck variant will mark Maruti's entry in another growing segment currently led by Tata and Mahindra.
Going forward, the automaker's decision to increase prices is expected to help offset the effects of rising input costs (see India: 16 December 2014: Maruti, Hyundai confirm price increases in India from January 2015). Although Maruti Suzuki has started to focus more on the domestic market in recent years and has lost its position as the second-largest vehicle exporter to Nissan, export volumes are likely to remain healthy this fiscal year (see India: 13 January 2015: Maruti Suzuki aims for 20% y/y jump in exports in FY 2014/15).