Maruti Suzuki-Oct '10 - Sales grew 39% y/y : JPMorgan

Visit http://indiaer.blogspot.com/ for complete details �� ��


Maruti Suzuki India Ltd Neutral
MRTI.BO, MSIL IN
Oct '10 - Sales grew 39% y/y led by festive season demand



• September sales at 118,908 units were up 39% y/y. Sales growth was
driven by the domestic segment (+50% yoy) while exports declined
(-18% yoy).



• Domestic segment sales at 107,555 units (+50% yoy) was driven by the
festive season purchases - the Eeco (+92% y/y), mass market A2
segment (+51% y/y) and A3 segment (+32% y/y). System inventories
remain comfortable with several models having a waiting period. The
company has de bottlenecked capacities and will now be able to
produce 1.3m units on an annualized basis.

• Export sales moderate: Maruti’s export shipments at 11,353 units
(-18% yoy) declined, given static demand in Europe. Management is
now focusing on non-European country to diversify the product mix.
They expect to increase contribution from non-European countries to
account for 50% of total shipments.

• In its recently held post results conference call, management
highlighted the following: Volume Outlook: Management was upbeat
on industry growth and expects the strong momentum to sustain over
2H. Margin Outlook: While commodity costs are likely to be rangebound,
the company will be impacted by the adverse currency
movement – particularly the JPY – which has appreciated by c.10% over
the past few months. Over 2H, the company has hedged about c.25% of
its direct yen contracts, while on exports it has hedged 80% of sales. VW
alliance:
Management highlighted that an announcement on the same could be
made by year-end.

• During the month, the stock (+2% mom) marginally outperformed the
broad BSE Sensex (flat yoy), given healthy sales growth. However, the
OEM in its recently reported 2Q results reported flat margins, despite
robust sales. We reiterate our Neutral stance on the stock given that
while industry growth will likely aide Maruti’s volumes, profitability is
likely to be impacted by adverse currency movement and increasing
competitive intensity.