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India Equity Research Reports, IPO and Stock News
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Our top pick
FY11-13E EPS CAGR of 20% highest among auto stocks we cover
Our checks reveal Maruti dealers most bullish of all OEMs
We believe FY11 will mark the bottom for EBITDA margins
We increase FY12-13 EPS estimates by 4-9%; TP to INR1,525
Growth at value
We believe cars will outperform all other
auto segments in terms of volume growth
in FY12, and Maruti should be able to
grow largely in line with the industry (16%,
vs 17% for the industry). We also believe
Maruti’s margins will bottom in FY11 and
improve into FY12, helped by recent price
hikes, JPY depreciation and operating
leverage on strong volume growth. We
are building in a 20% EPS CAGR for
Maruti over FY11-13. We find the stock
attractive at 12.3x our consolidated FY12
EPS estimate, a 10% discount to its
historical average.
Very positive on Maruti’s volumes
Recent management interactions as well as series of elaborate dealer
checks make us most positive on passenger cars, among all auto
segments. Low penetration of cars per household, ease of financing and
increase in per capita income (in excess of increase in the cost of
ownership) support our thesis. While competition is a reality, Maruti’s
successful negotiation of the first set of competitive launches in 2010
without any market-share loss gives us confidence. Heading into the next
set of launches (Toyota, Honda and Hyundai), we believe Maruti will
largely be able to offset any slight share loss in existing segments with
gains in others. It is launching a new model (RIII) in the utility vehicles
(UV) segment, where it has almost no presence currently. We estimate
that a monthly run-rate of 2,000 vehicles for the new model can offset up
to a 165bp share loss in the compact car (A2) segment.
We expect Maruti’s margins to bottom in FY11
We believe frequent price increases, JPY depreciation and operating
leverage on strong volume growth will help Maruti offset input cost
pressures. We believe low industry-level profitability in India leaves very
little room for a sustained price war in the passenger car industry (see
our report, Maruti Suzuki India: Margins bottoming out, 31 January 2011).
Increasing estimates and TP
We are increasing our EPS estimates by 4% for FY12 and 9% for FY13,
on higher volumes (post our dealer checks and as we build in RIII model
volumes) and margin estimates (on operating leverage and JPY
depreciation). This increases our TP from INR1,465 to INR1,525. Our
revised TP is based on a sum of 15x our FY12 standalone EPS estimate
and 5% for subsidiaries, implying 21% potential upside from current
levels. Risks to our TP are a sharp appreciation in commodity prices,
appreciation in the JPY and slowdown in volumes.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Our top pick
FY11-13E EPS CAGR of 20% highest among auto stocks we cover
Our checks reveal Maruti dealers most bullish of all OEMs
We believe FY11 will mark the bottom for EBITDA margins
We increase FY12-13 EPS estimates by 4-9%; TP to INR1,525
Growth at value
auto segments in terms of volume growth
in FY12, and Maruti should be able to
grow largely in line with the industry (16%,
vs 17% for the industry). We also believe
Maruti’s margins will bottom in FY11 and
improve into FY12, helped by recent price
hikes, JPY depreciation and operating
leverage on strong volume growth. We
are building in a 20% EPS CAGR for
Maruti over FY11-13. We find the stock
attractive at 12.3x our consolidated FY12
EPS estimate, a 10% discount to its
historical average.
Very positive on Maruti’s volumes
Recent management interactions as well as series of elaborate dealer
checks make us most positive on passenger cars, among all auto
segments. Low penetration of cars per household, ease of financing and
increase in per capita income (in excess of increase in the cost of
ownership) support our thesis. While competition is a reality, Maruti’s
successful negotiation of the first set of competitive launches in 2010
without any market-share loss gives us confidence. Heading into the next
set of launches (Toyota, Honda and Hyundai), we believe Maruti will
largely be able to offset any slight share loss in existing segments with
gains in others. It is launching a new model (RIII) in the utility vehicles
(UV) segment, where it has almost no presence currently. We estimate
that a monthly run-rate of 2,000 vehicles for the new model can offset up
to a 165bp share loss in the compact car (A2) segment.
We expect Maruti’s margins to bottom in FY11
We believe frequent price increases, JPY depreciation and operating
leverage on strong volume growth will help Maruti offset input cost
pressures. We believe low industry-level profitability in India leaves very
little room for a sustained price war in the passenger car industry (see
our report, Maruti Suzuki India: Margins bottoming out, 31 January 2011).
Increasing estimates and TP
We are increasing our EPS estimates by 4% for FY12 and 9% for FY13,
on higher volumes (post our dealer checks and as we build in RIII model
volumes) and margin estimates (on operating leverage and JPY
depreciation). This increases our TP from INR1,465 to INR1,525. Our
revised TP is based on a sum of 15x our FY12 standalone EPS estimate
and 5% for subsidiaries, implying 21% potential upside from current
levels. Risks to our TP are a sharp appreciation in commodity prices,
appreciation in the JPY and slowdown in volumes.
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