Dealers said weakness in the Japanese yen also helped Maruti Suzuki’s shares. A weaker yen will help reduce the cost of royalty payments to Suzuki Motor, the Indian car maker’s Japanese parent.
Shares of the country’s top car-maker have jumped over 27 per cent in the past three months, outperforming both the BSE Sensex and auto indices, which rose over 3 and 9 per cent, respectively, in the same period despite the strike at Maruti’s Manesar plant and the fifth consecutive fall in quarterly net profit.
According to Sharekhan, Maruti and Mahindra & Mahindra (M&M) are likely to outperform the sector in the near-term on strong backlog.
Maruti recently launched the 800 cc variant of the popular Alto model in India, which saw over 21,000 bookings within a week of launch. Six models from the two companies, including the Maruti Dzire and the Mahindra XUV 500, have pending orders of about 170,000 units, or as much as 75 per cent of the average monthly passenger vehicle sales recorded in the broader sector, as per Sharekhan calculations.
Analysts also expect a push for Maruti’s export of parts by latent demand from Pakistan after Suzuki’s Pakistan arm asked the country’s government to permit the import of complete knock down (CKD) kits for the Alto model from India. This is likely to generate Rs. 300-400 crore revenue. Exports contribute around 9-10 per cent of Maruti’s total volumes.
Export of CKD kits of Euro-II compliant Alto were halted as 159 of its parts were on the negative list of items traded between the two neighbouring countries. Pak-Suzuki then discontinued production of various cars, including Alto, which needed Euro-II compliant engines from June due to emission norms. India is the only country in the region producing Euro-II compliant parts.
However, with the likely elimination of the negative list in December, Maruti could see a jump in its revenue, pushed up by exports of CKDs to Pakistan. The Alto is a successful model in Pakistan, with 13,000 units sold in 2011, largely due to the vacuum in the 1,000 cc space. Market analysts also expect demand for CKD kits for utility vehicle Ertiga in Pakistan to drive up exports.
The car maker started exports of parts and CKD kits only this fiscal year. It has already seen a significant demand for Ertiga’s CKD kits, which also contributed to a jump in better-than-expected revenue in the second quarter. Most brokerages are bullish that Maruti beat the Street with an increase in EBITDA (earnings before interest, tax, depreciation and amortization) margin to 6.1 per cent and an 8.5 per cent jump in net sales.