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Maruti Suzuki India Ltd
Neutral
MRTI.BO, MSIL IN
3QFY11 PAT at Rs.5.7B (-18% yoy) declines on lower profitability
• 3Q PAT at Rs.5.7B (-18% yoy): While Maruti registered healthy topline
growth (+27% yoy); profits declined given lower (adjusted) EBITDA margins
at 8.4% (-40bp qoq). We re-iterate our Neutral stance on the stock - while
healthy industry growth will likely aide Maruti’s volumes, profitability is likely
to be impacted by rising commodity prices and increasing competitive intensity.
Further, while GDP growth is likely to sustain at c.8-8.5%, macro headwinds,
rising inflation and interest rates could impact consumer sentiment.
• Results highlights: While volumes grew 28% yoy, realizations declined -1%
yoy on lower exports resulting in revenues growing +26% yoy to Rs.93.6B.
Reported EBITDA margins were at 7.9%; adjusted for the one time impact of
salary revisions margins came in at 8.4% (-40 bp qoq). The higher raw material
expenses ratio +100bp qoq, which increased due to the impact of rising JPY,
weakening euro, adverse product mix as well as higher discounts was partially
offset by lower other expense ratio (-80bp). Expenses were lower given that a
decline in exports led to a fall in royalty payouts (5.2% in 3Q vs. 5.5% in 2Q)
and the company saved on ocean freight expenses.
• Management conference call takeaways: Volume Outlook: Though
management was upbeat on industry growth, they cautioned that rising interest
rates, fuel prices, etc. could impede demand over the medium term. Margin
Outlook: While the impact of the strengthening JPY has largely been factored
over 3Q, the company will have to contend with rising commodity prices as well
as increasing competitive intensity. Maruti has raised product prices by c.1-2%
in early January to partially offset the above. Hedging policy: The company has
an open (unhedged) import position as management expects the JPY to weaken;
however it has hedged its euro related exports. Capacity expansion: Maruti has
de bottlenecked capacity to 1.4m units (1m units in Gurgaon, 0.4m units in
Manesar). Manesar B (capacity of 250,000 units) will be on stream by Sep'11.
• Price Target & Estimates: We are lowering our EPS estimates by 7-11% over
FY11 -13E to factor in weaker margins. We consequently set a revised Sep’11
target price of Rs.1,320 based on 14x forward earnings (inline with mid cycle
multiples). We believe that rising competitive intensity as well as macro
headwinds will weigh on growth rates / margins. Key downside risks: slower
than anticipated industry growth rates, upside risks: lower than expected build
up in competitive intensity.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Maruti Suzuki India Ltd
Neutral
MRTI.BO, MSIL IN
3QFY11 PAT at Rs.5.7B (-18% yoy) declines on lower profitability
• 3Q PAT at Rs.5.7B (-18% yoy): While Maruti registered healthy topline
growth (+27% yoy); profits declined given lower (adjusted) EBITDA margins
at 8.4% (-40bp qoq). We re-iterate our Neutral stance on the stock - while
healthy industry growth will likely aide Maruti’s volumes, profitability is likely
to be impacted by rising commodity prices and increasing competitive intensity.
Further, while GDP growth is likely to sustain at c.8-8.5%, macro headwinds,
rising inflation and interest rates could impact consumer sentiment.
• Results highlights: While volumes grew 28% yoy, realizations declined -1%
yoy on lower exports resulting in revenues growing +26% yoy to Rs.93.6B.
Reported EBITDA margins were at 7.9%; adjusted for the one time impact of
salary revisions margins came in at 8.4% (-40 bp qoq). The higher raw material
expenses ratio +100bp qoq, which increased due to the impact of rising JPY,
weakening euro, adverse product mix as well as higher discounts was partially
offset by lower other expense ratio (-80bp). Expenses were lower given that a
decline in exports led to a fall in royalty payouts (5.2% in 3Q vs. 5.5% in 2Q)
and the company saved on ocean freight expenses.
• Management conference call takeaways: Volume Outlook: Though
management was upbeat on industry growth, they cautioned that rising interest
rates, fuel prices, etc. could impede demand over the medium term. Margin
Outlook: While the impact of the strengthening JPY has largely been factored
over 3Q, the company will have to contend with rising commodity prices as well
as increasing competitive intensity. Maruti has raised product prices by c.1-2%
in early January to partially offset the above. Hedging policy: The company has
an open (unhedged) import position as management expects the JPY to weaken;
however it has hedged its euro related exports. Capacity expansion: Maruti has
de bottlenecked capacity to 1.4m units (1m units in Gurgaon, 0.4m units in
Manesar). Manesar B (capacity of 250,000 units) will be on stream by Sep'11.
• Price Target & Estimates: We are lowering our EPS estimates by 7-11% over
FY11 -13E to factor in weaker margins. We consequently set a revised Sep’11
target price of Rs.1,320 based on 14x forward earnings (inline with mid cycle
multiples). We believe that rising competitive intensity as well as macro
headwinds will weigh on growth rates / margins. Key downside risks: slower
than anticipated industry growth rates, upside risks: lower than expected build
up in competitive intensity.
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