Maruti Suzuki India - In line, Upgrade to Accumulate: Emkay

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Maruti Suzuki India Ltd.

In line, Upgrade to Accumulate

ACCUMULATE

CMP: Rs 1,234                                       Target Price: Rs 1,470

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n     Results in line. EBIDTA was in line with est. at Rs 9.4bn. Margins at 9.9% (est. of 9.6%) was above est. Net profit at Rs 6bn (est. Rs 5.8bn) was above est. due to lower tax rate

n     Demand outlook remains strong. Currency risks increase as company has not hedged its Yen position as it expects currency to depreciate

n     Lowered FY11E/FY12E EPS by 6.6%/5.2 to Rs. 80.1/93.1due to adverse product mix assumption. Upgrade rating to ACCUMULATE post price correction with a TP of Rs 1470

n     At our TP of Rs 1,470 the stock trades at 8x our FY12 EV/EBIDTA (on the lower side of our auto universe) due to lack of intent to raise prices

 Net Sales – below expectation

Net sales at Rs 94.9bn was below est. of Rs 97.3bn primarily due to lower average

selling price (ASP) per vehicle. Volume grew by 28.2% YoY and 5.4% QoQ to 330,687

units. ASP stood at Rs 280,529 (-1.3% YoY, -1.5% QoQ) against expectation of Rs

288,489 due to adverse product mix. Also other operating income was below est.

EBIDTA margins at 9.9% ahead of our est of 9.6%

EBIDTA at Rs 9.4bn was in line est due to better than expected performance on

margins front. This was driven by significantly lower other operating expenses. S&D

cost were under control due to strong demand. RM to sales at 80.3% was higher than

our est of 79.8%. It should be noted that there was a complete draw down of inventory

created in 2QFY11.

APAT marginally above est due to lower tax rate

Net profits stood at Rs 6bn was marginally above est. of Rs 5.8bn due to lower tax rate.

Tax rate at 27.5% was lower by 150 bps against our est.

Valuations and View

At CMP of Rs 1,234 the stock trades at PER of 13.2x and EV/EBIDTA of 6.4x our FY12

estimates. We have revised our EPS estimate downward for FY11 & FY12 by 6.6% & 5.2%

to Rs 80.1 & Rs 93.1 respectively due to adverse product mix assumptions (resulting in lower

topline). We have valued the stock at EV/EBIDTA of 8x of FY12 estimates which at the lower

end of our auto universe. We continue to have concerns with lack of intent of the company to

raise price tp provide cushion against cost pressures.