Despite a double-digit growth in volumes, better realisations and cheaper raw materials, Maruti’s net profit of ₹802 crore in the quarter ended December 2014 came as a disappointment. However, it still appears well placed to ride the cyclical recovery in auto sales.

Maruti’s profits may have been higher but for the increased sales and marketing expenses on launches, one-time payment of dues on an erstwhile sales tax dispute under litigation and greater tax outgo on capital gains made in FMP investments.

The operating margins stood at 12.6 per cent, only a shade higher than the 12.4 per cent posted in the December 2013 quarter.

In top gear

The company is, however, in top gear now. After the slowdown of the last two fiscals, domestic automobile sales have been on a cyclical recovery path this year. In the months to come, cooling inflation and the beginning of interest rate cuts will hasten volume growth in the industry. Maruti has also been able to take on competition and improve its market share in recent times. After dipping below 40 per cent in 2011-12 and 2012-13, its market share inched back to 42 per cent last fiscal and is at 45 per cent for April-December 2014.

A richer product mix from launches such as the Ciaz sedan and upcoming SUVs – XA Alpha and the SX4 S Cross - will impact realisations and operating margins positively. Recognising these strengths, the market has rewarded the stock handsomely in the last year.

The stock now trades at 35 times its trailing 12-month earnings, much higher than the historical average of around 20 times.

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