Why Maruti Suzuki shares jumped 4 per cent

NDTV Profit Desk

21 Nov 2012, 12:50 PM IST

Suzuki’s Pakistan arm has asked the country’s government to permit the import of parts for the Alto model from India. This is likely to push up Maruti’s exports and generate Rs 300-400 crore revenue. Exports contribute around 9-10 per cent of Maruti’s total volumes.
Export of complete knock down (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.
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.
Dealers said that weakness in the Japanese yen also helped Maruti Suzuki shares given expectations that it will reduce the cost of royalty payments to Suzuki Motor.

With inputs from PTI, Thomson Reuters