Maruti may Find it Tough to Sus­tain its Ro­bust Show

Fears of global cur­rency volatil­ity, lower ex­port vol­ume growth, new steel price post MIP may put pres­sure on com­pany

The Economic Times - - Smart -

sa­tion with in­cre­men­tal sales vol­umes of Baleno, SCross and Vi­tara Brezza, where it of­fers no dis­count. As a re­sult, av­er­age dis­count per ve­hi­cle dropped ₹ 4,000 per ve­hi­cle to ₹ 17,000.

The fear of global cur­rency volatil­ity will con­tinue to loom large. In the March quar­ter, Maruti was ex­posed to the di­rect cur­rency ex­po­sure in terms of pay­ing roy­alty to the Ja­panese par­ent. In the June quar­ter, it will have in­di­rect ex­po­sure as well in the form of pay­ments to Ja­panese sup­pli­ers, which oc­cur with a quar­ter’s lag.

This in­di­rect ex­po­sure is nearly 16% of the to­tal raw ma­te­rial cost of the com­pany. Ex­port rev­enue acts as a nat­u­ral hedge to the in­di­rect ex­po­sure. Thus, a bet­ter ex­port vol­ume should help. How­ever, Maruti has guided for a flat ex­port vol­ume growth for FY17 due to de­clin­ing Sri Lankan vol­umes. This may el­e­vate the pres­sure on the mar­gins.

Also, the im­po­si­tion of the min­i­mum im­port prices (MIP) for steel will add to the pres­sure on the mar­gins. New steel prices ef­fec­tive from the first half of cur­rent fis­cal may trim mar­gins as high as 100 ba­sis points.

The com­pany’s con­sen­sus pro­jected earn­ings per share (EPS) for the cur­rent fis­cal has been re­duced by 12%. The stock has fallen 17% so far in FY17, mak­ing it among the worst per­form­ers in the BSE Auto in­dex.

In the short term, the stock move­ment will be linked to the yen move­ment as it will de­ter­mine the profit growth. A ma­jor trig­ger for the stock will be bet­ter-than-ex­pected vol­ume growth. An­a­lysts ex­pect the com­pany’s vol­ume to in­crease by 10-11% for FY17. The stock is trad­ing at 18.9 times of FY17 pro­jected earn­ings. The val­u­a­tion re­flects un­cer­tain­ties re­lated to mar­gins and vol­umes growth.

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