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Maruti Suzuki: Likely fuel price hike may hit auto major’s recovery run

Maruti Suzuki, the largest player in the domestic passenger vehicle segment has sought to regain lost ground in its operations in the March ’12 quarter, considering the labour strife which had impacted its performance in the first three quarters of the current fiscal.

The company’s total vehicle sales grew 4.9% YoY in the fourth quarter, in contrast with a 16.6 % YoY decline in the first three quarters of FY12. But its operating profit margin declined 280 basis points YoY to 7.3% in the March ’12 quarter, while net sales grew 17.2% during this period.

Going forward, investors would be closely watching whether Maruti, over the next few quarters, would be able to maintain the momentum set in the fourth quarter. This will remain the key to driving the company’s net sales and net profit on a YoY basis.

In keeping with this goal, the company had recently launched, the utility vehicle- Ertiga which the management says has already received nearly 22,000 bookings. That apart, there is also a strong demand for its new Swift and Dzire models launched earlier.

The company is also expanding supplies of diesel engines at its facilities to nearly 400,000 units during FY13, in tune with the broader trend in the domestic passenger vehicle segment, namely popularity of diesel-engine run cars. This comes at a time when the difference between retail petrol and diesel prices is more than 20 per litre. Maruti’s market share in the domestic passenger vehicle market was estimated at 39.5% at the end of March ’12 quarter, lower on a YoY basis, but has shown an improvement on a sequential basis.

What will also help is the softening of auto finance rates from elevated levels, after RBI cut key policy rates. Amidst an improving operating environment, the underlying fear for the broader auto sector could be a potential increase in fuel prices. If that happens, it could once again impact consumer sentiment and impact growth rates in the broader passenger vehicle segment.

Apart from that, non-ferrous inputs such as aluminum have shown signs of easing, but a weak rupee has not helped. The company is focusing on productivity measures, in the short-term, coupled with enhancing localising levels over the next few years, to improve its operating margins.

The Maruti stock fell 2% to 1,370 on Monday. The stock trades at a P/E of more than 20 times on a standalone basis on a trailing four-quarter basis and it does appear expensive in the near-term.

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Posted by on May 2 2012. Filed under Automobile News. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

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