Maruti’s top performers to get special bonuses

Maruti Suzuki India Ltd will hand out special bonuses to its top-performing employees after posting a record profit in the year ended March.

The company has made a provision for the bonuses in its March quarter financial results, which was released on Monday, chief financial officer Ajay Seth said in a phone interview on Tuesday, without giving details.

While Seth declined to comment on the total payouts to be made during the quarter, he said the bonuses will be the highest in the last 3-4 years.

“We have posted our best performance during 2014-15. So, naturally the employees will be rewarded better than before,” Seth said.

Maruti employs at least 10,000 people in the country.

The total payouts will cost Maruti anywhere between Rs.100 crore and Rs.133 crore, according to two people familiar with the development. They declined to be named.

On Monday, Maruti reported 61% growth in net profit to Rs.1,284 crore in the quarter ended March, beating analysts’ estimates by a wide margin and sending the stock higher by more than 3% on Monday.

The stock rose 5.05% to Rs.3,831 on Tuesday. Maruti’s fourth-quarter employee cost rose 80 basis points to 3.8% of net sales. One basis point is 0.01%.

While Maruti is still in the process of structuring the payouts, it might be possible that its top-performing employees may get bonuses equivalent to as much as three months’ salary.

Maruti has seen a remarkable turnaround in fortunes since 2011-12, when following a series of labour strikes, the company’s share price plunged to Rs.1,400 levels. It lost 7 percentage points in market share because of unavailability of models in the market due to intermittent supply of vehicles from the Manesar plant that made popular models such as Swift and Dzire. Its profit during 2011-12 had declined 29% to Rs.1,635.34 crore.

However, it quickly reclaimed the lost share and ended 2014-15 with close to 45% market share in the passenger vehicle market. Its stock price has more than doubled since 2012.

According to Abdul Majeed, a partner and national automotive leader at consultant PricewaterhouseCoopers, the company worked smartly on most of the parameters in the last three years.

“Their turnaround story cannot be believed if you look at other companies in the market,” Majeed said.

Of the 18 car makers, only five posted sales growth. Car sales, excluding those of Maruti, fell 1.4% in the year ended March.

Maruti’s decision to penetrate deeper into rural markets coupled with its intention to offer “innovative technology” such as semi-automatic gear shift in Celerio hatchback helped it bounce back quickly in the market, Majeed said.

On Tuesday, as many as 49 out of 59 analysts tracking Maruti has recommended a buy rating, while six asked investors to hold and four gave a sell rating.

An Angel Broking Ltd report released on Tuesday said that the company’s focus on larger cars with two new product launches scheduled over the next one year period will help it increase its market share and profitability.

“We view MSIL as the best play on passenger vehicle demand recovery and expect 34% earnings CAGR (compounded annual growth rate) over FY 2015-2017,” the brokerage firm said in its report.

Angel has an accumulate rating on Maruti stock and expects the stock to trade at Rs.4,179 by 2017.

Another Mumbai-based brokerage firm Karvy Stock Broking Pvt. Ltd said that there will be an increase in the number of first-time buyers with the economic recovery.

“We believe that MSIL’s strong product pipeline coupled with vast dealer network would be the key driver over the next 2-3 years,” Karvy said in its report. “We reiterate our ‘buy’ recommendation on MSIL and raise our target price by 4.6% to Rs.4,500.”

India Infoline Ltd increased Maruti’s earnings per share estimate for 2015-16 and 2016-17 by 5-6%, led by an increase in margin assumptions.