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Maruti Suzuki Shares plunge after Q1 results
Publish Date: 30th July, 2018
Maruti Suzuki, the biggest Indian car company in terms of revenue, witnessed shares fell 3.6 % on the BSE after results. Over the past two days, shares have shed value despite gains in benchmark indices like Sensex and Nifty. Maruti is a key component of these indices.
What caused its shares to take a knock?
Profits below estimates: Maruti reported a lower-than-expected net profit of Rs 1,975 crore. This is despite reporting a higher operating profit of Rs. 2632.3 cr for the quarter ended June 2018. The lower net profit was due to the mark-to-market impact on the invested surplus. A hike of 0.8% in interest rates during the quarter meant that Maruti Suzuki had to take mark-to-market losses on the cash surplus.
In Mark-to-market , a company marks the price or value of a security to reflect the current market value. The value of assets changes every second as the market conditions change and buying and selling occur. Thus, values on either side of the balance sheet may change.
Related read: 7 terms you will hear often in earnings announcements
Operating profit below street estimates too: Maruti Suzuki profits also felt the heat of adverse commodity prices. Higher commodity prices mean higher raw material cost (input cost). This was also one of the reasons why Maruti Suzuki’s profit estimates did not fall in line with market expectations.
Related read: How to Perform Income Statement Analysis
Mixed bag results: Markets are based on expectations. Thus, even if the above-mentioned numbers were the best in six quarters, they couldn’t meet the market expectations and thus suffered a fall in both the indices.
Related read: What the latest GST rate cuts mean for you
Overall, Maruti Suzuki sold more than 4.63 lakh units domestically and exported more than 26 thousand units during Q1 of the current fiscal. Its total sales grew 24.3% than the last year’s figures, domestic sales alone growing at 25.9 %.
Conclusion
Reasons like lower other income and adverse commodity prices led to the miss in the profit expectation mark. Therefore, yesterday, when BSE touched a new height of 37,000 points, Maruti Suzuki shares went into a reverse gear.
What our analysts say:
We have an ADD rating for the stock. We believe Maruti Suzuki’s operating margins will improve due to scale benefits, a richer product mix and reduction in discounts.
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