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MARUTI SUZUKI 2QFY11: Margins below estimates; higher than estimated other income improved adj. PAT; Downgrading EPS; Buy
Maruti (MSIL, Mkt Cap US$10.1b, CMP Rs1,551, Buy) 2QFY11 operating performance is below estimates with EBITDA margin of 10.5% (v/s est 10.9%). However, higher than estimated other income and lower tax boosted adj. PAT to Rs5.98b (v/s est Rs6.02b). Key highlights:
- Net sales improved by 10.1% QoQ (~27.0% YoY) to Rs91.5b (v/s est Rs91.1b) driven by 10.7% QoQ (~27.4% YoY) growth in volumes and flat realizations YoY despite 17.5% YoY decline in export realizations.
- EBITDA margins improved by 20bp QoQ (~220bp YoY decline) to 10.5%, driven by 20bp QoQ (~60bp YoY increase) decline in other expenditure.
- EBITDA grew by 4.8% YoY (~12.0% QoQ) to Rs9.6b (v/s est Rs9.9b). Higher than estimated other income, lower depreciation and tax boosted adj PAT by 5% YoY (~16.7% QoQ) to Rs5.98b (v/s est Rs6.02b).
- Management indicated that it is witnessing severe pressure due to forex volatility (only ~12.5% of 2HFY11 JPY exposure hedged) and increase in non-steel commodity prices, impact of which would be reflected in 2HFY11. Operating leverage (~8% growth in volumes in 2HFY11 over 1HFY11) would partly off-set cost pressures.
- We downgrade our EPS estimates for FY11 and FY12 by ~3.5% to Rs81.8 and Rs99.2 respectively, to model for the cost push.
Robust volumes boost revenues
- Net revenues grew 10.1% QoQ (~27.0% YoY) to Rs91.5b (v/s est Rs91.1b), driven by 10.7% QoQ (~27.4% YoY) improvement in volumes and 0.3% QoQ improvement (~0.5% YoY down) in realizations.
- Volume growth is driven by 32.9% YoY (~14.4% QoQ) growth in domestic volumes, whereas exports are down 3.7% YoY (~11.7% QoQ).
- Realizations improved by 0.3% QoQ (~0.5% YoY drop) to Rs284,935/unit driven by price increase taken in Aug-10. While domestic realizations improved by 3% YoY driven by price increases and lower discounts, export realizations declined by 17.5% YoY impacted by depreciating EUR and change in market mix in favor of non-Euro region (~60% of exports to non-Euro v/s 20% in 2QFY10).
- Product mix has stabilized with higher share of A2 & A3 segment (to 84.8% v/s 87.1% in 2QFY10 v/s 84.7% in 1QFY11). The MPV segment has shown an increase (to 13.3% v/s 9.0% in 2 QFY10 v/s 11.8% in 1QFY11) led by robust demand for Eeco.
RM cost inflation restrict margin expansion to 20bp QoQ
- EBITDA margins improved by 20bp QoQ (~220bp YoY decline) to 10.5% (v/s est 10.9%), driven by 20bp QoQ (~60bp YoY increase) decline in other expenditure and higher operating leverage. Lower other expenditure was driven by lower selling & advertising expenses due to robust demand (down ~40bp QoQ) and savings from Gas based power plant at Manesar (~20bp improvement).
- RM cost increased by 20bp QoQ (~170bp YoY), which is full reflection of revised contracted steel prices. The management indicated that impact of steel price increase in 2QFY11 is ~75bp (of which ~35bp is arrears of 1QFY11 paid in 2QFY11).
- Royalty was higher by ~20bp QoQ (adj for arrears in 1QFY11) to 5.3% due to adverse product mix change and strengthening Yen.
- EBITDA grew by 4.8% YoY (~12.0% QoQ) to Rs9.6b (v/s est Rs9.9b). Higher than estimated other income, lower depreciation and tax boosted adj PAT by 5% YoY (~16.7% QoQ) to Rs5.98b (v/s est Rs6.02b).
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