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Maruti Suzuki (MSIL)
Automobiles
Management meeting takeaways: Well placed for strong volumes and margins.
We met Maruti’s management to discuss the company’s strategy and future plans. The
management seemed confident of achieving 15% volume growth in FY2012 and
increasing EBITDA margins by 1.5-2% over the next 2-3 years. The company’s strategy
will revolve around protecting its market share and reducing costs through localization
to improve its EBITDA margins. We retain our BUY rating on the stock with a target
price of Rs1,460.
Key takeaways from management meeting
�� The management seemed confident of achieving 15% yoy volume growth in FY2012E. It
believes Tier-2 and Tier-3 cities in rural areas will be key growth drivers for the company. In fact,
strong corporate sales in Mumbai helped Maruti to increase their market share in FY2011E in
Mumbai
�� The company plans to reduce its Yen exposure (sans royalty expense) to 15% of net sales over
the next 2-3 years from 25% of net sales (10% direct exposure, 15% indirect exposure)
through aggressive localization plans. Maruti has been able to reduce Yen exposure by 1.25%
in FY2011E
�� The company plans to spend Rs30 bn in FY2011 and Rs 40 bn in FY2012 in (1) capacity
expansion in Manesar and Gurgaon, (2) product development expense and (3) setting up R&D
facility in Rohtak and stockyards across India. Capex is likely to be around Rs80 bn over FY2011-
2013E which is higher than the management’s earlier estimates of Rs67 bn
�� The company indicated that EBITDA margins have been hit by a sharp appreciation of the Yen
and depreciation of Euro versus the Rupee which has impacted export ASPs (average selling
prices). The company has kept its Yen exposure unhedged after March 2011 as it believes the
Yen will depreciate versus the Rupee
�� Maruti is up against rising commodity costs, especially steel and rubber. The company’s
competitors will likely be compelled to raise prices to protect their profitability as their margins
are much lower, Maruti will likely follow suit
�� The company also plans to focus on logistics and plans to invest in setting up stockyards across
the country. The first stockyard is coming up in South India in a month, which should reduce
the delivery time for vehicles
We retain our BUY rating on the stock with a target price of Rs1,460
We retain our BUY rating on Maruti as we are confident of the company maintaining its strong
volume growth and margins despite strong raw material cost headwinds. Our target price of
Rs1,460 is based on 15X PER on our consolidated FY2012E EPS of Rs96.8.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Maruti Suzuki (MSIL)
Automobiles
Management meeting takeaways: Well placed for strong volumes and margins.
We met Maruti’s management to discuss the company’s strategy and future plans. The
management seemed confident of achieving 15% volume growth in FY2012 and
increasing EBITDA margins by 1.5-2% over the next 2-3 years. The company’s strategy
will revolve around protecting its market share and reducing costs through localization
to improve its EBITDA margins. We retain our BUY rating on the stock with a target
price of Rs1,460.
Key takeaways from management meeting
�� The management seemed confident of achieving 15% yoy volume growth in FY2012E. It
believes Tier-2 and Tier-3 cities in rural areas will be key growth drivers for the company. In fact,
strong corporate sales in Mumbai helped Maruti to increase their market share in FY2011E in
Mumbai
�� The company plans to reduce its Yen exposure (sans royalty expense) to 15% of net sales over
the next 2-3 years from 25% of net sales (10% direct exposure, 15% indirect exposure)
through aggressive localization plans. Maruti has been able to reduce Yen exposure by 1.25%
in FY2011E
�� The company plans to spend Rs30 bn in FY2011 and Rs 40 bn in FY2012 in (1) capacity
expansion in Manesar and Gurgaon, (2) product development expense and (3) setting up R&D
facility in Rohtak and stockyards across India. Capex is likely to be around Rs80 bn over FY2011-
2013E which is higher than the management’s earlier estimates of Rs67 bn
�� The company indicated that EBITDA margins have been hit by a sharp appreciation of the Yen
and depreciation of Euro versus the Rupee which has impacted export ASPs (average selling
prices). The company has kept its Yen exposure unhedged after March 2011 as it believes the
Yen will depreciate versus the Rupee
�� Maruti is up against rising commodity costs, especially steel and rubber. The company’s
competitors will likely be compelled to raise prices to protect their profitability as their margins
are much lower, Maruti will likely follow suit
�� The company also plans to focus on logistics and plans to invest in setting up stockyards across
the country. The first stockyard is coming up in South India in a month, which should reduce
the delivery time for vehicles
We retain our BUY rating on the stock with a target price of Rs1,460
We retain our BUY rating on Maruti as we are confident of the company maintaining its strong
volume growth and margins despite strong raw material cost headwinds. Our target price of
Rs1,460 is based on 15X PER on our consolidated FY2012E EPS of Rs96.8.
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