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Maruti Suzuki (MSIL)
Automobiles
Rising fuel prices not a big threat to volume growth. We believe rising fuel prices
may not be a very big threat to passenger car volume growth as indicated by past
trends with incomes increasing at a faster pace than rise in cost of ownership. Maruti
tends to benefit in a rising oil price scenario as its models are at least 10-15% more fuel
efficient than competitor models. Maruti’s market share has also marginally improved in
a rising fuel price scenario, as per our analysis. Retain BUY with a TP of Rs1,460.
Concerns about sharp rise in fuel prices impacting volume growth may not play out
We believe investor concerns that rising fuel prices will impact passenger car volume growth may
not play out as (1) income levels are increasing at a faster rate than rise in cost of ownership, (2)
auto manufacturers are producing more fuel-efficient cars to offset rising crude price impact on
volumes, (3) increase in share of diesel, LPG and CNG models in the overall volumes. Maruti’s
models are at least 10-15% more fuel efficient than its competing models and gives the company
a key competitive advantage versus peers. Maruti’s market share has also improved marginally in a
rising oil price scenario despite sharp increase in competitive intensity.
Maruti Suzuki, Tata Motors have capitalized on consumer preference for upgrading to A3 segment
Maruti Suzuki and Tata Motors product mix has improved considerably after the launch of Swift
Dzire and Indigo CS while Hyundai Motors and General Motors have lost market share in the fast
growing A3 (sedan) segment. Both Maruti Suzuki and Tata Motors were first to capitalize on this
trend of customers shifting to bigger cars available at affordable prices. We expect this trend to
continue and expect Maruti Suzuki, Tata Motors and Toyota (Etios) to be the key players in the
lower-end sedan segment over the next few years.
Maruti’s stock price shows a high correlation with JPY-INR movement
We correlated Maruti’s stock price with JPY-INR movement and found a very high correlation.
JPY-INR has appreciated by 48% since March 2007 and Maruti’s margins have declined by 5.4%
since FY2007. Rising royalty expense has contributed to 2.5% negative impact on EBITDA margins.
Maruti management recently indicated that currency movements have impacted their margins by
6% since FY2007 which indicates that business margins (ex currency movements and royalty) have
actually improved by 3% over FY2007-2011E. We maintain our BUY rating on the stock with a
target price of Rs1,460 (based on 15X PE on our consolidated EPS of Rs96.8 in FY2012E).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Maruti Suzuki (MSIL)
Automobiles
Rising fuel prices not a big threat to volume growth. We believe rising fuel prices
may not be a very big threat to passenger car volume growth as indicated by past
trends with incomes increasing at a faster pace than rise in cost of ownership. Maruti
tends to benefit in a rising oil price scenario as its models are at least 10-15% more fuel
efficient than competitor models. Maruti’s market share has also marginally improved in
a rising fuel price scenario, as per our analysis. Retain BUY with a TP of Rs1,460.
Concerns about sharp rise in fuel prices impacting volume growth may not play out
We believe investor concerns that rising fuel prices will impact passenger car volume growth may
not play out as (1) income levels are increasing at a faster rate than rise in cost of ownership, (2)
auto manufacturers are producing more fuel-efficient cars to offset rising crude price impact on
volumes, (3) increase in share of diesel, LPG and CNG models in the overall volumes. Maruti’s
models are at least 10-15% more fuel efficient than its competing models and gives the company
a key competitive advantage versus peers. Maruti’s market share has also improved marginally in a
rising oil price scenario despite sharp increase in competitive intensity.
Maruti Suzuki, Tata Motors have capitalized on consumer preference for upgrading to A3 segment
Maruti Suzuki and Tata Motors product mix has improved considerably after the launch of Swift
Dzire and Indigo CS while Hyundai Motors and General Motors have lost market share in the fast
growing A3 (sedan) segment. Both Maruti Suzuki and Tata Motors were first to capitalize on this
trend of customers shifting to bigger cars available at affordable prices. We expect this trend to
continue and expect Maruti Suzuki, Tata Motors and Toyota (Etios) to be the key players in the
lower-end sedan segment over the next few years.
Maruti’s stock price shows a high correlation with JPY-INR movement
We correlated Maruti’s stock price with JPY-INR movement and found a very high correlation.
JPY-INR has appreciated by 48% since March 2007 and Maruti’s margins have declined by 5.4%
since FY2007. Rising royalty expense has contributed to 2.5% negative impact on EBITDA margins.
Maruti management recently indicated that currency movements have impacted their margins by
6% since FY2007 which indicates that business margins (ex currency movements and royalty) have
actually improved by 3% over FY2007-2011E. We maintain our BUY rating on the stock with a
target price of Rs1,460 (based on 15X PE on our consolidated EPS of Rs96.8 in FY2012E).
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