Rising input costs, loan rates a worry for Maruti Suzuki, but automobile company can bank on festive season

The impact of the recent labour strife in Maruti Suzuki's production facilities is reflected in the lacklustre monthly sales numbers for the company. In September '11, the company's monthly vehicle sales declined nearly 20.8% year-on-year (YoY) to 85,565 units while in August '11, they fell by 12.7% YoY.

The company's total vehicle sales in the September '11 quarter declined 19.6% YoY. Apart from that, while commodity input costs have shown signs of easing over the past few weeks, they still remain at elevated levels and are a cause for concern among investors.

According to ETIG estimates, Maruti is expected to show a near 69.4% YoY fall in its net profit in the second quarter of FY12 while its total operational income is expected to decline almost 16.4% to 7,626 crore in the quarter under review.

The stock had ended Friday's trade lower by 2.1% to 1,081.4 and it was hovering just above its 52-week low of 1,045 recorded in mid-September. Media reports indicate that the labour problems at the company have been resolved, and the Street would be carefully monitoring the ramp-up in production activities at the company's facilities over the next few weeks.

The company has received a strong customer response from customers for its new Swift model. Also, the festive season across the country has started and one would typically see a pick-up in auto purchases.

However, rising auto finance rates are a cause for concern for the broader auto sector and the resulting sluggish trend in passenger car sales.

Maruti had also reported a 0.6% YoY fall in its total vehicle sales in the June 11 quarter. Apart from that, investors are also concerned that Maruti is hedged with regards to its yen exposure, only till the end of the September 11 quarter. And this comes at a time when the Japanese yen is close to record high against major currencies.

The company's imports of components amounted to almost 7.9% of its FY11 standalone net sales of 37,040 crore. To deal with this forex problem, Maruti is focusing on enhancing indigenisation levels of its components and allied suppliers, over the next few years. Maruti is trading at a P/E of about 13.2 times on a trailing four-quarter basis.