Motilal Oswal: MARUTI SUZUKI: Sep-10 volumes above estimates

MARUTI SUZUKI: Sep-10 volumes above estimates; Highest ever at 108,006 (+29.6% YoY, 3.1% MoM); Buy

-          Maruti's Sep-10 volumes are above estimates with 29.6% YoY growth (~3.1% MoM) to 108,006 units (v/s est 103,000 units). This is driven by 33% YoY growth in domestic volumes and 10% growth in exports.

-          Domestic volumes grew 33% YoY (~2.7% MoM) to 95,148 units (v/s est 92,000 units). Volume growth in domestic market was driven by newly launched Eeco (C segment grew by 67% YoY) as well as recently launched Alto K-10.

-          Inventory build-up at est 3.5-4 weeks at end Sep-10 (v/s 3 weeks in Aug-10) ahead of festive season is due to very strong retail demand.

-          While C segment volumes grew 67% YoY (-2.4% MoM), both A2 and A3 segment witnessed robust growth of 31% YoY (~4.5% MoM) and 43% YoY (flat MoM).

-          Recently launched Alto K-10 has received strong response and contributes ~40-45% of total Alto volumes.

-          Export volumes were above estimates at 12,858 units (v/s est 11,000), a growth of 10% (~6% MoM), led by recent launch of A-Star in non-European markets.Non-EU markets now accounts for ~50% of exports.

-          Volume growth in domestic market will remain robust driven by strong retail demand and launch of Alto-K10 as well as re-launch of Wagon-R CNG and other CNG fitted vehicles (Alto 800, Eeco, Estilo and SX4) in 2^nd week of September.

-          Its volumes would get further boost driven by additional 10,000/month capacity addition through de-bottlenecking from Oct-10. Further, it is focusing on preponing commissioning of brownfield expansion of 0.25m cars at Manesar by 3QFY12 and another 0.25m cars by 4QFY12.

-          We model FY11 volume growth of 22% to 1.24m units (v/s guidance of 1.2m), with domestic volume growth of 26% and export volume de-growth of 2%, implying residual monthly run rate of 107,473 units (v/s 99,496 units in FY11YTD) and a residual growth of 18% vs 26% in 1HFY11. We also model 140bp increase in RM cost, 160bp increase in royalty, translating into 210bp decline in EBITDA margins to 11.2%.

-          The stock trades at trades at 14x FY12 EPS of Rs102.8 and 9.8x FY12 Cash EPS of Rs146.9. Maintain Buy with a target price of Rs1,763 (~12x FY12 Cash PE).