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Refreshed portfolio to drive volumes even as cost concerns persist
Maruti Suzuki is considering new launches in the MUV and SUV segment; additionally, it is likely to launch variants of
the existing models with alternative fuels and engine capacity options.
On the commodity front, Maruti has already negotiated steel contracts for Q4 FY11. Although the company had taken
price hikes in January to counter input cost pressure, it has not passed on the entire cost to consumers. The company is
planning to bring down vendor imports to half from current levels, in order to increase the localization rate.
The waiting period on popular models is expected to reduce (Swift Dzire c2 months, Swift c1 month) as additional
capacity comes onstream at the beginning of FY12, with overall capacity reaching 1.9m units by FY13. In case of a slow
demand scenario, the company is unlikely to ramp up production as it does not prefer to build inventory.
Valuation and risks
The stock is currently trading at 12.0x our FY12e EPS. We expect the multiple to stay largely unchanged at 12.4x.
Consequently, we apply the current forward-year multiple to FY13e EPS to derive our 12-month target price of INR1,425.
Key downside risks include adverse currency movement (EUR for exports and to JPY for imports), stronger competition,
and higher-than-expected increase in raw material prices and interest rates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Refreshed portfolio to drive volumes even as cost concerns persist
Maruti Suzuki is considering new launches in the MUV and SUV segment; additionally, it is likely to launch variants of
the existing models with alternative fuels and engine capacity options.
On the commodity front, Maruti has already negotiated steel contracts for Q4 FY11. Although the company had taken
price hikes in January to counter input cost pressure, it has not passed on the entire cost to consumers. The company is
planning to bring down vendor imports to half from current levels, in order to increase the localization rate.
The waiting period on popular models is expected to reduce (Swift Dzire c2 months, Swift c1 month) as additional
capacity comes onstream at the beginning of FY12, with overall capacity reaching 1.9m units by FY13. In case of a slow
demand scenario, the company is unlikely to ramp up production as it does not prefer to build inventory.
Valuation and risks
The stock is currently trading at 12.0x our FY12e EPS. We expect the multiple to stay largely unchanged at 12.4x.
Consequently, we apply the current forward-year multiple to FY13e EPS to derive our 12-month target price of INR1,425.
Key downside risks include adverse currency movement (EUR for exports and to JPY for imports), stronger competition,
and higher-than-expected increase in raw material prices and interest rates.
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