Maruti Q4 net rises 39 per cent as margins improve

Auto major Maruti's Q4 results are ahead of market expectations. Though the volume growth story was well known, the improvement in operating margins by 107 basis points came as a pleasant surprise.

For the fourth quarter ended 31 March 2006, net profits of Maruti increased 39.11 per cent to Rs360.92 crore or Rs12.49 per equity share from Rs259.45 crore or Rs8.96 per share for the year ago quarter. Total revenues rose 7.96 per cent to Rs3,392.27 crore from Rs3,142.1 crore.

Other income for the quarter increased 18.92 per cent to Rs115.26 crore from Rs96.92 crore. Services income, included in operating revenues, rose 42.69 per cent to Rs16.68 crore.

A reduction of 35.34 per cent in depreciation charges for the quarter to Rs72.56 crore from Rs112.22 crore helped the company to improve net margins.

Maruti managed to improve operating margins to 12.22 per cent of operating revenues during the quarter from 11.15 per cent for the year ago quarter. Operating profits, excluding other income, rose 17 per cent to Rs486.16 crore from Rs415.49 crore.

The company would find it hard to sustain the expansion in margins during this financial year. After remaining subdued for a few quarters, steel prices have started moving up again. Depreciation charges would rise substantially, once the new facilities go on stream.

The declining share of older models, which have much better margins, in sales volumes would depress the company's overall margins going forward. The new models introduced recently fetch lower margins because of the initial launch costs and royalty payable to Suzuki Motor.

On the demand front, the rise in interest rates would negate to a considerable extent the reduction in product prices because of the excise duty cut. The overall cost of ownership for the average customer would continue to rise if the interest rates go up further. The rise in input costs has already forced auto companies to withdraw some of the discount schemes.

On the positive side, the launch of diesel powered cars by Maruti would push up volumes. The company has also lined up some more new vehicle launches this year.

For the full year 2005-06, net profits increased 39.29 per cent to Rs1,189.05 crore or Rs41.16 per share as compared to Rs853.63 crore or Rs29.55 per share for the previous year. Full year revenues increased 9.93 per cent to Rs12,481.43 crore from Rs11,353.87 crore.

Full year profits got a positive boost from a 37.52 per cent decline in depreciation charges to Rs285.42 crore from Rs456.83 crore. Other income increased 9.64 per cent to Rs429.19 crore from Rs391.46 crore.

Operating margins for FY06 improved to 13.5 per cent of net sales from 12.83 per cent for the previous year. Full year operating profits, excluding other income, increased 15.67 per cent to Rs1,626.61 crore from Rs1,406.27 crore.