Maruti Suzuki - 2QFY11 Results: Uneventful Quarter: Citi

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Maruti Suzuki India (MRTI.BO)
2QFY11 Results: Uneventful Quarter

 ~Rs6bn PAT was marginally (1%) above estimates — Operating EBITDA (ex other
operating income) was flattish Q/Q at ~8.8%. Overall revenues missed estimates
by ~2%, on account of lower FX realizations on exports. Elevated ‘other expenses’
& 20bps uptick Q/Q in royalty resulted in EBITDA miss of ~5% vs. estimates.
Some cost trends were also encouraging – material costs dipped 40bps Q/Q to
79.6% of sales (price hikes in Aug); S&D expenses also dipped 40bps Q/Q.

 Con call takeaways: — a) Healthy demand environment – in the con call, mgmt
noted demand environment is healthy in cities / towns / rural (now 19% of sales).
b) Pricing trends firm - discounts down 18% Y/Y; Q/Q slight uptick to
RsRs8,500/car, vs Rs8,200 in 1Q. c) FX hedges / outlook – mgmt stated 80% of
exports hedged for 2H, on imports 25% JPY exposure hedged, 75% open (mgmt
reckons JPY/$ at 80 is peak), but spillover impact of FX could impact margins into
2H. d) Capacity creation – current production run rate = 1.3m units / year; MSIL
will add 250k units in Q3FY12; increase to 1.7m units by FY13.

 Mix shift / market share trends — Mgmt noted 2Q mix was slightly adverse vs 1Q
(lower proportion of A3 vehicles), which impacted overall domestic realizations
(flat Q/Q, despite 1.5-2% price hike). Within domestic, diesel – petrol mix has
attained what appears to be equilibrium of ~17%-83%. CNG accounts for 15-18%
of overall mix in Mumbai, Delhi and Gujarat (areas launched). On a broader
segment level, in A2 segment, MSIL’s market share bounced sharply to 56.5%
from 53.4% in 1Q – driven by the Alto K10 – key driver of volume growth into 2Q.

 Maintain Hold — Currency headwinds will challenge margins over 2H.
Additionally, Toyota’s impending launch of its small car + VW’s ramp up could
impact MSIL’s recent market share gains. With stock having rebounded sharply
from 1Q lows, we see little rationale to get more constructive at this juncture.