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Maruti Suzuki India Ltd. |
Yen depreciation/price hike the key, downgrade to HOLD |
HOLD
CMP: Rs 1,551 Target Price: Rs 1,600
n Results marginally below est. due to lower sales and higher tax rate. APAT at Rs 6.2bn (est. Rs 6.4bn). Adj EBIDT at Rs 9.9bn (es. -Rs 10.3bn), margins at 10.8% (est. 11.0%)
n Yen depreciation/price hike crucial for margin upgrades/stock performance. Lower JPY/Re est. for FY12 to 1.85 (from 1.9). 2HFY11 margins to be lower by 70 bps due to currency
n Upgrade FY11E/FY12E volumes est. by. 2.6% to 1.26mn/1.44mn units. Lower FY11E/FY12E EPS by 3.5% to Rs 85.7/Rs 98.Price hike not assumed, due to lack of intent
n Downgrade rating to HOLD, however raise TP to Rs 1600 (up 10%) due to valuation upgrade (8.5x EV/EBIDTA) due to strong volume outlook and higher return ratios
Net Sales – below expectation
Net sales at Rs 91.5 bn was below est. of Rs 93.6bn primarily due to lower average
realizations per vehicle. Volume grew by 27.4% YoY and 10.7% QoQ. Avg. realization
per vehicle stood at Rs 284,935 (flat YoY & QoQ) against expectation of Rs 292,076
EBIDTA marginally below expectation due to lower net sales
EBIDTA at Rs 9.9bn was below our est. of Rs 10.3bn, due to lower net sales. EBIDTA
margins at 10.8% marginally below expectation of 11.0%. RM to sales ratio stood at
77.0% against est. of 76.9%. We have lowered RM cost for the quarter by Rs 35bps as
the quarter had the impact of price increases given to vendor from April 2010. Other
Operating income was higher than our estimates due to higher scrap sales (Rs 170mn),
cash discounts and forex gain (Rs 100mn).
APAT marginally below expectation due lower topline and higher tax rate
Net profits stood at Rs 6.2bn was marginally below est. of Rs 6.5bn due to lower topline
and a higher tax rate. Tax rate at 29.3% was higher by 170 bps against our est.
Valuations and View
At CMP of Rs 1,551, the stock trades at PER of 18.1x and 15.8x and EV/EBIDTA of 10.1x
and 8.3x our FY11 and FY12 estimates respectively. We have revised our EPS estimate
downward for FY11 & FY12 by 3.5% each to Rs 85.7 & Rs 98.2 respectively due to lower
margin assumption due to currency est. We have valued the stock at EV/EBIDTA of 8.5x of
FY12 estimates. We downgrade our rating to ACCUMULATE from HOLD, with a revised TP
of Rs 1,600
Key Con Call Extracts
¾ Forex Hedges – Has hedged 80% of exports and 25% of direct imports for next 6
months. However, is not hedged for any foreign currency exposure on vendor’s end
¾ Average exchange rate for H1FY11 – Re/ Euro ~ Rs 62/ & Re/JPY ~ .506. Impact of
adverse movement of currency (especially Yen) could be visible from Q3FY11 itself.
¾ Export sales stood at Rs 21.2 bn fro H1FY11.
¾ Export market mix ~ 50% each in Euro & USD. Key export markets other than Europe,
Australia, New Zealand, Indonesia, Malaysia, Brunei etc.
¾ Import content (including royalty) is around 28% of net sales with 80% exposure in Yen
¾ Capacity – Current capacity stand at 1.1mn units. Additional .25 mn units will come on
stream by Oct-Dec2011 at Manesar and another .25mn unit in FY13.
¾ Had a steel price settlement during the quarter with retrospective from Q1FY11. Around
50% of incremental increase in RM cost as a % of sales could be contributed to
Q1FY11.
¾ Expect steel prices to remain flattish. Other commodities like natural rubber, copper and
precious metals are hardening
¾ Company took price hikes in August in domestic market. Is not looking to take any
further price hike in domestic or export market.
¾ Have introduced CNG product line in Mumbai, Delhi and Gujarat markets. CNG products
form around 18-20% of total volumes in these markets
¾ Average discount during the quarter was ~ Rs 8500 during the quarter (Rs 8200 in Q1)
¾ Proportion of rural sale was around 19% for H1FY11.
¾ Capex guidance for FY11- Rs 28bn
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