Is Maruti Suzuki Stock to Buy Now?

The behemoth in the auto sector, Maruti Suzuki Ltd., has produced a phenomenal growth of achieving a net profit of Rs.570 Crores for the second quarter of this fiscal, 2009-10 a rise of almost 93% as against Rs.296 Crores in the corresponding quarter of last fiscal. It also seen a 47% rise in its sales for the same quarter at Rs.7050 Crores as against Rs.4806 Crores. This was achieved mainly by the very good demand from semi-urban markets coupled with a strong export, low interest regime and mainly the government’s stimulus.

“The good results this quarter is a combination of significant rise in volumes, softening of commodity prices, besides a better product mix,” as said by Mr. Ajay Seth, CFO, Maruti Suzuki Limited.

The result has beaten the estimation of analysts tracking the auto sector. This quarter result is mainly achieved by strong domestic sales which grew by 21.8 percent to         209, 083 units. In export front also, the company achieved a sales of 66,419 units against the total sale of 70,023 units exported for whole of 2008-09. But the main concern in the export front for the company in the coming quarters is expected in the form of withdrawal of the scrappage incentives in Europe. The company’s flagship brand for export, A Star model has done very well while other brand is not that much encouraging.

The company exported more than 77,000 units of its A-Star model since its first shipment from January, and from the second quarters, it is expected the company is preparing to make shipment to South Africa and Latin America under the brand name ‘Celerio.’ The company has reported that in the near future it aims to ensure all newly manufactured vehicles to confirm to Bharat Stage IV emission norms.

As an expansion plan, the company is investing around Rs.150 crores in the current fiscal on its Gurgaon plant. Through this investment, the company expects to increase its production by 70,000 – 90,000 to its existing million unit production. Apart from this investment, the company is chalking out further investment plan to ramp up further production in the coming years and a detailed report on this front will be presented to the board in the coming January board meeting.

The company reported that the recent labour unrest in the Gurgaon auto belt has not affected the company much as other manufacturing companies are affected. It’s further stated that the company has made alternative arrangements to cope up to tie up the current situation in the Gurgaon-Manesar problem.

On Friday, the counter has witnessed a good buying and closed at 1517.35 a 2.4% gain from previous day close of 1486.95. It is currently trading near its 50 DMA at 1500 and technically the stock is also trading with buying indicator. The stock is trading at 33 times its prevailing trailing earnings and with the robust earnings it is expected to give a good investment return in the near future.