Maruti Suzuki India Q2FY11: Inline with expectations : UBS

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UBS Investment Research
Maruti Suzuki India
Q2FY11: Inline with expectations
􀂄 Q2 Sales: Rs 89.3bn (27% YoY); EBITDA Rs 9.6 bn (+5% YoY)
Sales increased 11%qoq, as volumes increased 11% QoQ while ASP’s remained
flat. Export ASP declined 1%qoq despite 2%qoq USD appreciation and 3.4% USD
appreciation during Q2FY11 vs INR as export mix changed to 60% non-EU mkts
from 30% in Q2FY10. Co. expects domestic demand momentum to remain strong
in H2FY11 despite high base and exports to remain flat for the year.
􀂄 RM cost and operating leverage drives EBITDA margin expansion
EBITDA margin improved 90bps qoq to 10.7% driven by decline in raw material,
staff cost & other opr. expenses (as %age of sales). Other opr. income included Rs
100mn of gains on FX. We believe RM cost declined 90bps qoq due to EUR &
USD appreciation and price increase taken in domestic mkt. in Aug’10. However,
RM costs were higher by ~50bps as a result of retrospective steel price increases
related to Q1FY11. PAT grew 5%YoY to Rs 5.98bn (5%QoQ).
􀂄 Currency & Commodity outlook remains critical
Only 25% of cos. import exposure is hedged for H2FY11, while ~80% of exports
are hedged. Hence, strengthening Yen and commodity prices will be the key
margin pressure points for the company. The company expects steel prices to
remain flat in H2FY11, however, believes there could be further increases in
rubber, copper and precious metal prices. We maintain our estimates for FY11.
􀂄 Valuation: Maintain Neutral, PT Rs 1,700
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers with UBS’s VCAM tool with a WACC of 11.3%.