India's biggest car maker Maruti Suzuki posted a better-than-expected quarterly profit Saturday. However, shares of the company languished at the bottom of the 50 - stock Nifty index. At 12.10 pm, the stock traded 2 per cent lower at Rs 1,368.15 on the National Stock Exchange, while the Nifty traded 0.87 per cent higher at 5,254.
Here are five reasons why the stock is trading lower today.
1) Profits under pressure: Maruti Suzuki posted a 3 per cent drop in profits for the fourth quarter ending March 31. It was the third consecutive quarter when profits fell. Labour strikes led to losses worth over Rs 2,500 crore in the last fiscal but the company expects sales to grow at 10 to 12 per cent in the year to March 2013.
Though, the decline in profits was less than Street expectations, the factors that contributed to the fall are unlikely to disappear. The company said adverse currency movements (yen appreciation) made a significant impact during the quarter. With fresh weakness in rupee, the June quarter will also see large outflow on account of currency. Also, pressure on account of high input costs (commodity prices) continues to weigh on bottom line.
2) Other income boosted bottom line: Maruti's profit was boosted by other income that rose 46 per cent to Rs 296.9 crore and not on account of core income from sale of cars. Other income comprises the treasury income and cash surplus invested in different investment plans.
3) Pressure on margins: Ebitda (earnings before interest, taxes, depreciation and amortization) margins grew by 7.3 per cent against expectation of 8 per cent. On an annual basis, margins declined 270 basis points in the March quarter. Besides yen appreciation, indirect imports limited margins expansion. The car maker imports a large amount of its vehicle parts from Japan. The Indian rupee fell around 13.5 per cent against the Japanese yen during the year to March 31.
4) Rising demand for diesel cars: Discounts on petrol cars are likely to rise even further as the demand for diesel car rises. The company witnessed a 50 basis points decline in margins on account of discounts. "The skew towards diesel cars also affected performance", Maruti Suzuki said in a filing to the stock exchanges. In the March quarter, diesel vehicles accounted for 21% of total sales.
5) Uncertainty over growth: The management accepts there are headwinds going forward. Pressures from macroeconomic side and concerns about high petrol prices are major headwinds, Maruti said.
"You will see growth in auto sales but it will not be very significant. We are working hard to ensure that we get back to our double digit ebitda margin," Ajay Seth, CFO, Maruti Suzuki told NDTV Profit.
Brokers on Maruti:
CLSA: Earnings growth recovery is fully priced in the stock. Maintain sell.
Bofa ML: Ebitda margin was largely in line with our estimates but below Street expectations.
Goldman Sachs: Risk of consensus cuts after Q4 result.
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