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Maruti Suzuki – Below Expectations

July 23, 2008

Maruti Suzuki reported robust volume growth of 13.5% and realization growth of ~7% on favorable change in the product mix. Revenues came in at Rs48.6 bn. Operating margins came in at 11.7%. Depreciation came in at Rs1.7 bn, nearly double last year’s Rs0.9 bn, due to recently announced accelerated depreciation policy.

Net earnings came in at Rs4.7 bn, 7% below last year’s Rs5.0 bn, as higher accelerated depreciation and raw material costs offset the improvement seen in average realization per vehicle.

Maruti’s new model, A-Star, is slated for launch in October. We expect it to clock average monthly sales of 6,000 units and account for 10% of FY10e domestic sales. Consensus estimate the company to report an EPS of Rs 66 to Rs 69 for FY09.

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