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UBS Investment Research
Maruti Suzuki India
Q3FY11: in-line, margin concerns to abate
Q3 Sales: Rs 92.8bn (26% YoY); EBITDA Rs 9.0 bn (-20% YoY)
Sales increased 4%qoq, as volumes increased 5%qoq while ASP’s declined by
1.5%qoq. Domestic ASP declined 1.5%qoq due to higher year end discounts.
Exports ASP declined 3%qoq due to USD depreciation and worsening export mix
(70% exports now non-EU). Co. expects near term domestic demand momentum to
remain strong and exports to decline due to demand slowdown in EU.
Better cost control limits margin decline; PAT: Rs 5.65bn (-18%YoY)
EBITDA margin declined 100bps qoq to 9.7% driven by 100 bps increase in RM
due to higher discounts and FX impact. Co. was able to offset commodity price
pressure through cost reduction. Staff cost increased by 75bps qoq due to salary
increases, of which 55bps reflected arrears for H1FY11. Other expenses declined
80bps qoq due to lower royalty and selling and distribution expenses. Royalty
expenses declined 30bps qoq due to lower exports and change in product mix.
Margins have bottomed, valuations remain compelling
We maintain our volume growth of 12%YoY for FY12E. We believe margins have
likely bottomed in Q3FY11 and are likely to improve, barring any sharp move in
Yen. Co. remains unhedged on the Yen. Co. has managed to increase capacity to
1.4mn units p.a. for H1FY12. We believe valuation is compelling at 12.8x FY12E
earnings. We see limited downside risk to stock from current levels.
Valuation: Maintain Buy, PT of 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%
Maruti Suzuki India
Maruti Udyog Limited is the largest passenger car manufacturer in India with a
market share of over 50%. The company was formed in 1983 and commenced
operations in 1984, as a joint venture between the Government of India (GOI)
and Suzuki Motor Corporation. In 2002, GOI ceded majority control to Suzuki
by not subscribing to a rights issue. GOI subsequently sold 27.5% of its stake to
investors in an IPO. Suzuki owns 54.6% of Maruti. Suzuki selected Maruti to be
its small car manufacturing hub for the European market and also as an R&D
centre.
Statement of Risk
Higher raw material costs and slowdown in demand remain the key risks to our
estimates for Maruti. Increasing competitive pressure due to entry of newer
players in its core segment could further impact margins negatively.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Maruti Suzuki India
Q3FY11: in-line, margin concerns to abate
Q3 Sales: Rs 92.8bn (26% YoY); EBITDA Rs 9.0 bn (-20% YoY)
Sales increased 4%qoq, as volumes increased 5%qoq while ASP’s declined by
1.5%qoq. Domestic ASP declined 1.5%qoq due to higher year end discounts.
Exports ASP declined 3%qoq due to USD depreciation and worsening export mix
(70% exports now non-EU). Co. expects near term domestic demand momentum to
remain strong and exports to decline due to demand slowdown in EU.
Better cost control limits margin decline; PAT: Rs 5.65bn (-18%YoY)
EBITDA margin declined 100bps qoq to 9.7% driven by 100 bps increase in RM
due to higher discounts and FX impact. Co. was able to offset commodity price
pressure through cost reduction. Staff cost increased by 75bps qoq due to salary
increases, of which 55bps reflected arrears for H1FY11. Other expenses declined
80bps qoq due to lower royalty and selling and distribution expenses. Royalty
expenses declined 30bps qoq due to lower exports and change in product mix.
Margins have bottomed, valuations remain compelling
We maintain our volume growth of 12%YoY for FY12E. We believe margins have
likely bottomed in Q3FY11 and are likely to improve, barring any sharp move in
Yen. Co. remains unhedged on the Yen. Co. has managed to increase capacity to
1.4mn units p.a. for H1FY12. We believe valuation is compelling at 12.8x FY12E
earnings. We see limited downside risk to stock from current levels.
Valuation: Maintain Buy, PT of 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%
Maruti Suzuki India
Maruti Udyog Limited is the largest passenger car manufacturer in India with a
market share of over 50%. The company was formed in 1983 and commenced
operations in 1984, as a joint venture between the Government of India (GOI)
and Suzuki Motor Corporation. In 2002, GOI ceded majority control to Suzuki
by not subscribing to a rights issue. GOI subsequently sold 27.5% of its stake to
investors in an IPO. Suzuki owns 54.6% of Maruti. Suzuki selected Maruti to be
its small car manufacturing hub for the European market and also as an R&D
centre.
Statement of Risk
Higher raw material costs and slowdown in demand remain the key risks to our
estimates for Maruti. Increasing competitive pressure due to entry of newer
players in its core segment could further impact margins negatively.
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