Idea Cellular Ltd. - Update Post March'15 Result.

Idea Cellular Ltd. was expected to post strong results for Q4-FY'15, based on the fact that the subscriber additions were very strong for the industry as well as the company in specific. Apart from the subscriber additions, the momentum in Data Usage growth has been very strong since the last 6-8 quarters and it is expected to continue for the next couple of years. For Q4, Idea Cellular posted a 22% growth in Total Income & a superb 60% growth in Net Profit on the back of expanding profit margins. Idea's growing scale of operations has been helping the company improve it's EBITDA and Net Profit margins. Have a look at the chart alongside. In March'2012, Idea's EBITDA margin stood at just over 25% and Net Profit margin was just under 4.50%. Idea's Quarterly revenue stood at about Rs.5300 crores then. Over the last 3 years or 12 quarters, Idea's Quarterly revenues have grown to over Rs.8600 crores and it's EBITDA margin has improved to a best ever figure of just under 38% and Net Profit margin too has improved vastly to close to 11% now. As we can see, the EBITDA margins have seen a smart jump in the last 2 quarters, which can be attributed primarily to Idea's Wireless Data business reaching a decent scale of operations now and has now started positively impacting the company's overall profitability.

( Click Here for Idea Cellular's Results Summary Page. )

It is no secret that the Wireless Data business is the main growth driver for any Telecom operator in India currently. All operators are scaling up their coverage and Data-handling capacities to keep up with the demand. Currently the demand is outstripping the supply and hence we see the Data rates remaining steady. As and when the supply starts going ahead of demand, we could see the rates coming down. As per the information shared by Idea Cellular in their quarterly reports, the amount of Data it's networks carried on a Quarterly basis has shot up from just about 7.2 million GBs in June'2012 Quarter to 54.5 million GBs in March'15 Quarter, i.e. it has multiplied nearly 8 times during these 10-11 quarters!! During the same period, the Quarterly Data Revenues have multiplied nearly 6 times from Rs.240 crores then to over Rs.1400 crores now. In the March'15 Quarter, Data Revenues contributed over 16.2% of Idea's Total Revenues, compared to less than 10% in March'14 quarter. So we can clearly derive that Data Revenues are now contributing a substantial portion of Idea Cellular's incremental Revenues growth. This is something that is true with almost all Telecom operators in India. 

On a Trailing-Twelve-Months basis, Data Revenues for Idea Cellular were Rs.4540 crores as on March'15, which is 97% higher than the number at the end of March'14 and it is nearly 275% higher than the number at the end of March'13. Have a look at the chart alongside:

As we can see in the chart, Idea's Data (T-T-M) revenues contributed just about 21% of the company's Incremental T-T-M Total Income. With every passing quarter the share has been increasing and has now hit the 45% mark at the end of March'15. Between Dec'14 and Mar'15, Idea's T-T-M Total Income was higher by Rs.1565 crores, while the company's T-T-M Data Revenues were higher by Rs.710 crores. During the last 8 quarters, Idea's T-T-M Total Income has grown at an average rate of about 4.5% Q-o-Q, while the company's Data Revenues have grown at an average rate of almost 18% Q-o-Q. This stupendous growth is expected to continue for another couple of years, though the Q-o-Q growth rate might slow down gradually to about 10-12% over the next 6-8 quarters mainly because the base for comparison will keep rising rapidly. 

RelJio Factor: The single biggest factor that can disturb the growth momentum in Data Revenues of any of the existing Indian Telecom operator is the potential launch of RelJio's 4G services. The launch has been delayed by quite a few months, but it is expected that we are getting closer to launch with every passing week. Still no body knows the exact timeline of the launch. This delay is playing very very well for all existing operators, including Idea Cellular. The current level of competition and the demand of Wireless Data is allowing the companies to continue growing without thinking about price cuts. In fact, many of the larger operators have been threatening to hike prices for Data packs. These operators can think about hikes or even go ahead with it only & only until RelJio's launch does not happen. I am very very sure than within days of RelJio's rollout starts, we will see all the existing operators starting to 'think' about price cuts. RelJio might take a few months to reach some scale of operations which will start impacting the businesses of existing operators noticeably. But it will happen. 

Valuations: Idea Cellular's T-T-M EPS stands at close to Rs.9/- and it's stock is currently trading at about 20-21 times it's EPS. This is not expensive valuations considering the growth momentum the company is currently experiencing. If we ignore RelJio's potential launch, I would bravely say that there is substantial potential of re-rating of Idea Cellular's stock upwards. This is despite the fact that the company's Interest Cost is expected to jump substantially in the current year, mainly because of the extra borrowing for Spectrum payments and newer rollouts. But the company currently has healthy cash flows from it's operations and can easily take care of that. But the big question mark is how and when will RelJio's network & service rollout happen. How aggressively does that company go after gathering subscriber base and increase it's network usage. Purely & purely because of this one factor, I cannot confidently say that Idea Cellular will see anything more than 15-20% movement on it's stock price over the next 12-15 months.

Yes Bank - Good Growth, Attractive Valuations.

Yes Bank Ltd. just announced it's Q4 & FY'15 results & I managed to get into breaking the numbers in more detail than usual. The upfront numbers were reasonably handsome, as expected. Q4 Total Income was up 22% Y-o-Y and Net Profit was up 28% Y-o-Y. These numbers are on-par with what was expected from Yes Bank. But I have some interesting information from the details that I have studied.

Trailing-Twelve-Months Growth

Yes Bank's T-T-M Y-o-Y Growth has seen smart recovery post June'14 quarter. From levels of about 30% or higher until Sept'13, the growth rates fell to levels of about 15% by June'14. Incidentally, June'14 was also the quarter when Yes Bank had done a QIP issue, i.e. raised Capital by issue of fresh shares. This extra Capital in hand meant that the incremental growth was less dependent on borrowed funds and hence the Net Profit growth was faster than growth in Total Income. The T-T-M Net Profit growth is now rapidly approaching the 25% mark & is slated to cross it by June'15.

Look at the chart alongside, which shows Yes Bank's T-T-M Interest Cost as a Percentage of it's T-T-M Total Income. After remaining stable at around the 62% mark for quite a few quarters until June'14, the Bank's Interest Cost has sharply dropped to about 59% of it's Total Income by March'15. This is the primary reason why Yes Bank's Net Profit margins have improved from 13.84% in June'14 to 14.77% in March'15 and has helped the Bank's Net Profit grow faster than Total Income. Yes Bank has now taken board approval to raise further Capital upto $1 billion via issue of shares or ADRs/GDRs. As and when Yes Bank does this additional issue of Equity instruments, the Bank will be able to bring the Interest Cost % further down to levels closer to 50% mark, where most larger banks like ICICI and Axis operate at.

( Click Here for Yes Bank's Results Summary Page. )

Digging into further details, I have found some more interesting information. Yes Bank has been primarily dependent on it's Treasury Operations & Wholesale (or Corporate) Banking business to drive it's Top-line as well Bottom-line until recent quarters. Until about 2-3 years ago, Yes Bank barely had 100 branches based in the Top-50 cities of India. But the Bank has been expanding it's Retail Branch network over the recent 2-3 years and now has 630 branches in 375+ cities across India. So, on one side Yes Bank continued to grow it's knowledge-based Corporate Banking business and on the other side the expanding branch network was increasing it's access to lower-cost deposits, also called as CASA (Current Account, Savings Account) Deposits. Still about 93% of Yes Bank's Total Income comes from it's Treasury & Corporate Banking operations. Retail Banking contributes less than 7% of it's Top-line, but over the recent quarters, it has been posting faster growth rates than other segments of operations. Have a look at the charts below. I have shown the T-T-M Income progress from Yes Bank's 3 Operating segments, T-T-M Profits progress from the Treasury & Corporate Banking operations:

As we can see, Yes Bank's Income from Corporate Banking segment is much larger than other segments and has been growing at a very steady pace. Infact the Y-o-Y growth rates of this segment are very steady around the 23% mark, which is a very healthy pace of growth. But the profits from this segment have started plateauing over the recent quarters. Here is where the Treasury operations are kicking in. Even though the Income from Treasury operations are volatile within a range, the Profits from this segment have been posting healthy growth over the last 3-4 quarters. Now look at the Retail Banking Revenues chart. This segment posted a very modest Y-o-Y growth of just 16% in March'14, but the growth rates have accelerated handsomely over the last 4 quarters and now stands at over 53%. Eventhough the base is very small for Retail Banking at the moment, but the growth has just started and could continue to accelerate for many more quarters. Yes Bank's Retail Banking division is still making small losses, but will turnaround & start posting profits in the next 4-6 quarters as the newly established Branches start maturing. Any new Branch will need atleast 2-3 years to breakeven and start posting profits. As most of Yes Bank's branches are less than 2 years old, they are still to reach breakeven level.

The Capital Employed figure for Retail Banking division of any Bank is negative because the Bank receives huge amounts of Retail Deposits, which is then used to Lend to other sectors. As we can see, Yes Bank's Capital Employed for Retail Banking has gone up from Rs.-9200 crores in March'13 to over Rs.-19500 crores by March'15, despite a sharp increase in the Operating Costs associated with this division. This negative Capital Employed number will continue to expand in the coming years as the Bank's Branch network expands and more & more of these branches mature.

Valuations: Yes Bank's stock is trading around the Rs.820 levels currently and it's T-T-M EPS stands at a little over Rs.48/-, translating into a P/E ratio of about 17. I think this valuation is fairly attractive from an Investment Point of view as Yes Bank is expected to continue growing at a decent pace over the long term. There will be an Equity Dilution happening when the Bank issues fresh shares to raise more Capital, but it will ultimately help the Bank in posting stronger Growth & improve it's margins. The blip in EPS will only be temporary. I think every dip in Yes Bank's share price is an opportunity to invest for long term investors.

Reliance Industries Ltd's Q4 - Not as splendid as it looks!!

Ever since RIL's stock started rallying earlier this month, suddenly every News channel was repeatedly shouting that RIL is expected to report it's best ever Quarterly Net Profit with a sharp increase in Gross Refining Margins (GRMs) to around the $10 per barrel mark. And boy, did RIL disappoint??!! Not a All. Reliance Industries Ltd did post a record Quarterly Net Profit figure of Rs.6381 crores, which was 21% higher Q-o-Q, but just 8.5% higher Y-o-Y. RIL's Q3 Net Profit was expected to be lower because of the Inventory losses arising from sharp fall in Crude prices. In fact I would rate RIL's Q3 to be superior than Q4 because the company still managed to post a healthy profit figure despite huge Inventory losses.

In Q4 RIL did not face any further Inventory losses, was able to buy Crude at very low prices and the end-product prices were coming down at a slower pace compared to Crude prices, which was expected to boost the margins enjoyed by most Crude Refiners & RIL being the most efficient Refiner was expected to be the biggest beneficiary. The end result was RIL managing to earn record margins in it's Refining business, which is also the biggest contributor to RIL's revenues & profits. Have a look at the chart below which shows the Quarterly EBITA & Net Profit Margin percentages over the last many quarters:

The chart clearly tells us the story of Q4. Between March'12 to December'14, RIL's EBITDA margins have hovered in a range of 9% to less than 12%, never above that. In March'15 quarter, it has shot up to a staggering over 17%!!! The story is similar in case of Net Profit margin. It used to be in the 4.5% to 6.5% range until December'14, but shot up to over 9% level in March'15. So the profit margins have been clearly very unusual during this quarter and there is a very high possibility that these margins will come back close to the normal range within the next 1 or 2 quarters. 

( Click Here for Reliance Industries' Results Summary Page. )

Don't get me wrong. I am not at all negative about Reliance Industries Ltd's future prospects. The company will continue to do record utilisation levels of it's plants in the Refining & Petrochemicals businesses. It's ongoing CAPEX to expand capacities in Petrochemicals segment and improve efficiencies in the Refining segment is absolutely on track and is expected to boost the company's margins by about 2% over the normal operating range. But I don't want investors to get swayed by this Record Net Profit figure posted this quarter. Remember than the input as well as end product prices of RIL's Refining & Petchem businesses are nearly 30% to 40% lower than what they were a year ago. This is expected to keep the company's turnover at levels much lower than last year levels. In such a situation if the company's profit margins come back closer to normal levels, then the company's quarterly Net Profit number could drop considerably from the one posted in Q4-FY'15.

But there could be some positives coming from the Oil & Gas business in the coming quarters. Q4 was expected to be the worst quarter for all Oil & Gas producers as the International prices were at the lowest levels of around $50 per barrel mark. Since then the prices have shown signs of bottoming out and any improvement from these levels will boost the profitability of all players in this business. RIL's domestic production volume numbers were disappointing as expected & hence did no good in mitigating the fall expected from lower product prices. But the production from RIL's Shale JVs have shown handsome growth, continuing the trend from earlier quarters. The increased production helped arrest the drop in turnover from this business segment, but the profitability was expected to be impacted & so it did. EBIT margins from this segment were about 10% lower than normal, but we can say that worst is behind if the crude prices don't fall to levels lower than that seen in Q3 & Q4. As mentioned earlier, any improvement in crude prices coupled with increased production volumes will boost the company's turnover & profits from this business over the numbers posted in Q4.

Coming to RIL's Retail business, it was slightly on the surprising side. Q3 of every year has lot's of festivals compared to other quarters and hence the sales recorded by any Organised Retail company is generally higher in Q3 than in Q4, especially in the Same-Store-Sales comparison. This year RIL's Retail business has managed to post some bit of Q-o-Q growth in Q4 over Q3 and this is excellent news. It's planned expansion seems to be working well and FY'16 will be much better both for turnover growth & improved profitability. The Retail business will also be benefiting from the launch of RelJio's Telecom business, as and when it happens. 

Unfortunately, there is not much news regarding when the 4G launch will happen. As per law, RIL needs to have a operating network presence in 80% of urban centres & 50% of rural centres within 5 years of receiving it's spectrum. The 5-year period for the 2300 MHz band spectrum ends sometime in August-September'15 and hence everybody is expecting the company to start doing commercial roll-out from the current quarter. But things have become a little bit more complicated with the company aggressively acquiring spectrum in 1800 MHz & 800 MHz bands in the last 2 spectrum auctions. These acquisitions will certainly involve substantial changes in the roll-out plans of the company. Let's just wait & watch how RelJio's launch pans out, hopefully soon.

TCS Ltd. Q4 - Disappointing numbers.

In my previous article on TCS written last month (Click Here for it), I had highlighted the fact about the company's growth clearly showing signs of slowing. Growth in Q4 was slightly more worse than in Q3. TCS's Total Income has posted a growth of 13.85% in Q4, which was helped by a 60% increase in the Other Income. This growth was lower than 14.42% posted in Q3 and 16.84% posted in Q2. The EBITDA numbers for Q4 are not directly comparable as the company has doled out a one-time bonus worth Rs.2600 crores for it's employees who have been with the company for 1 year or more. The Bonus is huge as the average payout per employee comes out to around Rs.90,000/-, with the older ones getting larger sums & newer ones getting smaller sums. The Bonus is 1 week's salary for every year of service completed with TCS.

( Click Here for TCS' Results Summary Page. )

Look at the chart. The T-T-M growth has sharply slowed down in the last 3 quarters. The T-T-M Total Income growth has dropped from 30+% level in June'14 to just about 17% in March'15. Going by the growth numbers in the last 3 quarters, the T-T-M growth number could drop further for the next 1 or 2 quarters. This is bad news for the company's valuations. The stock has been trading at premium valuations, which it deserved because TCS was posting superior growth until June'14 quarter. In the last 6-7 months, the TCS stock price has approached the Rs.2800 mark twice, but failed to breach it. At the Rs.2800/- level, the P/E ratio of the stock stood at around the 28-30 region then. As the company was posting growth in excess of 25%, we could say that it deserved it. But now that the growth has slowed down to well under 20% level, the P/E ratio should come down as well.

As we can see, the TCS stock was trading very close to it's crucial support levels until yesterday. With today's fall, the stock has dipped just below those support levels. Now it's very important to see if it sees some kind of bounce. But there is slightly higher chance that we could see the stock correcting further in the coming months. The correction could be gradual, with intermittent bounces, but the next few months are going to be down or range-bound movement for TCS stock. I am expecting the TCS stock to come down to P/E ratio of around 20 and maintain that, until the company starts posting a better growth rate of 20% or more again. At the current EPS of around Rs.102/-, the 20- P/E ratio level comes to about Rs.2000-2050 levels. Excluding the bonus impact, the EPS would have been about Rs.110-112. So the 20-P/E fair value would then come to about Rs.2200-2250 levels. But we need to keep an eye on upcoming quarterly results. The growth numbers are crucial. If TCS continues to post growth slower than 15% levels, we cannot ignore the possibility of the stock getting de-rated further.

Tata Teleservices (M) Ltd. - Tata Group finally seems to be getting serious about Telecom!!!

Until a few months ago, the impression was that the Tata Group was in no mood to continue with it's Telecom business & was desperately looking for a buyer. Tata Teleservices Ltd and it's associate firm Tata Teleservices (M) Ltd had not managed to achieve the performance goals set by NTT DoCoMo, which were set when the Japanese company had invested over $2 billion in the two telecom firms few years back. Early last year NTT DoCoMo decided to exercise the Put Option and exit the Tata Group's telecom firms. Now Tata Group had to urgently find a buyer for NTT DoCoMo's stake or buy-it-back itself. No outside buyer was ready to buy at the predetermined valuation. The buyback transaction is still under Indian regulatory objections, but might eventually get through.

Everyone thought that Tata Group will immediately sell off it's stake in the Telecom firms after completing the NTT DoCoMo transaction. But there have been some surprise developments in the two firms in the last 6 months or so. TTSL & TTML were holding 3G license in many crucial circles since 2010, but did not expand it's coverage beyond certain top cities in each circle. On the other hand, all other 3G operators had done substantial coverage expansion between 2011 & 2013. This had led to TTSL & TTML losing it's market share in the Wireless Data service business. The main problem was the companies' mounting Debt & lack of operating Cash Profits.

In June'2011 TTSL & TTML's combined VLR Subscriber base (Active base) stood at 43.69 million, which increased to 48.76 million by August'2012. This was the highest number the two firms had touched till date. After that point the competition's wider 3G as well as 2G coverage started attracting some of TTSL & TTML's customers and the VLR base kept falling gradually and fell to a low of 42.54 million by December'2013. Most of those who ported out from Tata DoCoMo were CDMA subscribers. From this point till September'2014, the service provider saw some moderate growth in it's VLR base. with Tata DoCoMo experiencing excellent growth in VLR base from the month of October'14 onwards. In the last 4 months till Feb'2015, the two companies together have added 2.19 million subscribers to it's VLR base, i.e. an average of almost 5.5 lakh subscribers every month. This is the best performance for the companies in many years.

The two companies seem to have raised fresh Capital from it's Promoter, i.e. Tata Group, under pressure from Banks, who had firmly said No to more funding unless the Tata Group adds more Capital in the business. A part of this Capital was used to undertake CAPEX to aggressively expand the companies' 2G GSM & 3G coverage to more cities & towns in the licensed areas and increase the server capacity to handle substantially more Data traffic. This CAPEX started in the September'14 quarter and has continued till date. This activity has immediately started showing results

The growth in Active subscriber base has had an immediate impact on the company's Total Income. We have the numbers for only TTML, which is a listed entity. We can clearly see a smart jump in TTML's Dec'14 quarterly Total Income. The continued increase in VLR base clearly suggests that this momentum is slated to continue or even get stronger in the March'15 quarter. I am expecting TTML's Total Income to grow by over 5% Q-o-Q. Remember that TTML operates in a highly competitive circles of Mumbai and Rest of Maharashtra & Goa. TTML has 3G license only for the latter circle, while it caters to Mumbai only with 2G GSM and CDMA-based Photon range of services. Vodafone is the strongest player in the Mumbai circle and Idea Cellular is strongest in the RoM&G circle.

Every operator is experiencing stupendous growth in revenues from Wireless Data business and being able to offer high-speed data speeds is the key in gaining incremental revenues. TTML's 3G license in RoM&G circle is a very important asset, which the company had not used properly until recently. But the company has been aggressively expanding it's 3G footprint in Maharashtra & Goa over the last 4-5 months and it's 2100 MHz 3G spectrum holding will get more properly used in the coming quarters. The other surprise came when the outcome of the recent spectrum auctions was announced. Tata Group had successfully bid for spectrum in the 800 MHz band worth almost Rs.8000 crores in select circles. This included spectrum worth almost Rs.3820 crores for Mumbai & Rest of Maharashtra circles. This was not just a surprise, but a shocker for most people who were following Tata Group's Telecom businesses closely. TTML has acquired 2.5 MHz in each of the two circles in the 800 MHz frequency band, which is highly suitable for 4G services. TTML already holds 3.75 MHz in Mumbai & 2.5 MHz in RoM&G circle in the same frequency band, but it's not the liberated kind and the company will have to shell out more money to liberate the existing holdings and then it can use the entire spectrum holding for launch of 4G services.

Here is the interesting part. During the 2010 3G spectrum auctions, TTML had won the 5 MHz slot in the 2100 MHz frequency band for RoM&G circle for less than Rs.1300 crores. And now TTML has won the 2.5 MHz slot in the 800 MHz band for the same circle for a whopping Rs.2000 crores!!! TTML has won the bid for Mumbai circle for the same quantity of spectrum in the same band for a slightly lower price at Rs.1820 crores. (This was another big surprise as the Mumbai circle price was expected to be much higher as compared to RoM&G circle.) The company is shelling out so much for spectrum at a time when it's Financial condition is not that strong. During the 2010 auctions, the company had just sold it's Tower subsidiary & used that money for the auctions. For this auctions, the Tata Group seems to have infused substantial Capital and given confidence to Banks that it is now taking this business very seriously.

Another possibility is that the Tata Group has reached an understanding with another telecom player like Telenor or Sistema or someone else, that they will be acquiring a substantial stake in TTSL & TTML as soon as the Govt. announces revised M&A rules for the Telecom sector. In either cases, these recent developments are very big positives for long term shareholders of Tata Teleservices (Maharashtra) Ltd. The company & it's promoter are finally taking steps to grow the business and improve it's valuation.

Happy Investing!!!

Maruti Suzuki - Competition has started biting!!

I had discussed about super-expensive valuations of Maruti Suzuki Ltd's stock at current prices of over Rs.3600/- per share in my previous article. In this article I won't be getting into that part again. Here I will be focusing on the Sales performance of Maruti Suzuki in two crucial segments: Premium Hatchbacks and Compact Sedans.

In total, Maruti sells about 1 lakh cars every month. 38-40% of these are from the Alto & Wagon-R category. Another 35-38% comes from the Ritz/Swift/Dzire category. 10-11% comes from Omni/Eeco category. 5-6% from Ertiga/Gypsy category. And the rest is comprised by it's recent launches, i.e. Celerio and Ciaz, which is about 8-10% of total sales.

The Ritz/Swift/Dzire category brings in the maximum in terms of turnover & profits for Maruti Suzuki Ltd. And this is where the company is facing lots of competition from other manufacturers. Hyundai is particularly strong in the Premium hatchback segments with it's i10 Grand and i20 Elite models with the latter generating volumes that are getting closer & closer to Swift's monthly volumes, despite being larger and more expensive. Even the Grand i10 is doing pretty healthy volumes for Hyundai at over 8000 units every month. On the other hand, Maruti's Ritz is a dying product with the volumes having come down to less than 2000 units per month in the last couple of months. Hyundai & Maruti together control about 75% of the Premium Hatchback market with a tough fight for the No.1 spot. Tata Motors with it's Indica/Vista & the Bolt models is the distant third, but has seen it's market share improve from less than 6% in October'14 to about 9% in March'15.

In the following chart I have considered monthly market shares of Hyundai India, Maruti Suzuki & Tata Motors only, which together command around 85% of the total market.

Maruti Suzuki's market share has dipped sharply to under 34% in March'15 from levels of around 42% in Dec'14 & Jan'15. On the other hand Hyundai's market share has approached the 40% mark, beating Maruti Suzuki for the 2nd time in the last 6 months. In October, Maruti's Swift sales had seen a sharp dip mainly because the company was clearing older stock & introducing newer upgraded model in that month. But there was no such issue in March'15. Part of the reason is fall in sales of Ritz model and even Swift has seen a dip of around 15% M-o-M. Apart from Hyundai, even Tata Motors is gaining some strength, though the numbers are far lower. And the reason is not the newly launched Tata Bolt model, but the older Indica/Vista models. After sales dipping to less than 2000 units in Jan'15, the Indica/Vista models have seen a revival in sales to over 3700 units in Mar'15. Bolt has been a disappointment for the company in the first few months. We will have to wait & see if it is because of supply constraints or lack of demand for the model, in the coming months. It seems as if the advertising being done for Zest & Bolt models is pulling customers into the showrooms, but they are getting more impressed with the value-for-money offerings in Indica/Vista and the Indigo CS models.

Coming to Compact Sedans segment, Maruti's Swift-Dzire is the clear market leader with a huge lead. In fact, many a times, the Dzire does monthly volumes higher than even the Swift and this is even more profitable for Maruti Suzuki, which commands over 45% market share in this segment. The 2nd biggest player in this segment is Honda with it's Amaze, which has seen a smart revival in sales in the last 4 months, but still does less than half the volumes of the Dzire. Honda captured a little over 20% market share in March'15. Tata Motors came third with just under 15% market share with it's two models: Indigo eCS and the newbie Zest. Here too the older model is selling more than the newer one.

From the chart we can see that Maruti Suzuki's market share in the Compact Sedans segment has come down from over 50% level to about 45% in the last 3-4 months. But it's not due to fall in Dzire's sales. It's monthly numbers are quite steady. But the market is expanding due to increased volumes from other players. Look at Honda, which has doubled it's market share in the last 4 months. Tata Motors too is more or less steady near the 14-15% mark. Hyundai's Xcent too is doing steady numbers and it's market share too is hovering around the 10% mark. But there is something all these manufacturers need to worry about and that is the upcoming launch of the Ford Figo Aspire, which is a brand new Compact Sedan Ford has developed and will be manufactured at it's brand new facility at Sanand, Gujarat. Ford is aiming for healthy volumes from this model and the car also seems to be competent enough to do it. It's expected to be launched sometime in June'15.

Tata Motors too is said to be developing a new Compact Sedan on the 'Kite' platform, which could replace the existing Indigo eCS or add to the product portfolio. But it's launch is atleast a year away. But Tata Motors is on it's revival path and is looking at expanding it's dealer network, which had shrunk sharply over the last 3-4 years. And this time the company is serious about it's domestic car business.

In short, Maruti Suzuki has lot's to worry about the two segments which give it the maximum turnover and profits. And in such a situation, commanding such premium valuations for too long might not be possible. Many institutional brokerages have a Buy rating on Maruti Suzuki with target prices in the range of Rs.4000 to 4500. But I beg to differ. If the sales blip in March is anything to go by, Maruti could be struggling to post the 15+% growth that it needs to post to make the current valuations sound a bit sensible. And it's premium offering Ciaz needs to continue doing well.

( Click here for Maruti Suzuki's Results Summary Page. )