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In-line 4Q results
Maruti’s 4Q net profit at Rs6.6bn was flat YoY and 3% above estimates.
EBITDA margins improved 50bps QoQ, mainly due to lower staff costs. Maruti
is seeing weakening retail demand with footfalls as well as conversions
dropping Feb onwards – in line with the findings of our recent dealer survey –
and sounded tentative on demand outlook. Management sounded sanguine on
component supply post the Japan earthquake and expects production to
remain stable. Slowing industry growth, rising commodity prices and
continuing competitive pressures are likely to keep Maruti’s margins subdued
in FY12. Stock performance could improve in 2HFY12 post Manesar plant
expansion and launch of new UV in 4Q. O-PF.
4Q results broadly inline with estimates
Maruti reported 4Q net profit of Rs6.6bn, flat YoY and 3% above estimates. 4Q
EBITDA at Rs10 bn was down 9% YoY and 1% below estimates. EBITDA margins
improved 50bps QoQ to 10.0%. RM/sales in 4Q was down 50bps QoQ due to
reclassification of toolings provided to vendors from raw material expense to gross
block. Staff costs dropped 34% QoQ due to write back of gratuity provisions and
absence of a one-time item of Rs720mn in 3Q. Tax rate fell 8.5% QoQ to 20.2%
due to the higher tax deduction benefit on R&D spend. Maruti has guided for R&D
spend of 1.4% of sales in FY12 from 1.1% in FY11 and a tax rate of 26-27%.
Weakening demand environment
Maruti is witnessing a weakness in the domestic demand environment due to
rising interest rates and fuel prices. The company is seeing a drop in footfalls as
well as conversions since Feb-11. This is in line with the findings of our recent
dealer survey where we observed a sharp increase in dealers reporting weakness
in retail demand over the last few months. We forecast industry volume growth to
slowdown to 16% in FY12 after two years of strong 25%+ growth.
Margins will remain under pressure in FY12
We believe that the 1% price hike in Apr is not sufficient to pass on the full extent
of input cost increases. The upcoming small car launches from Toyota, Honda and
Hyundai are likely to limit Maruti’s ability to take further price hikes.
Maintain estimates; stock likely to remain weak in 1H
We believe that Maruti’s stock will remain weak in 1HFY12 as we see downside to
street estimates for FY12 (we are 8% below consensus). Expansion of the
Manesar plant (which will help Maruti address rising waiting lists on diesel models)
and launch of a new UV in 4Q are some triggers, which could boost stock
performance in 2H. No change to estimates. O-PF stays.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
In-line 4Q results
Maruti’s 4Q net profit at Rs6.6bn was flat YoY and 3% above estimates.
EBITDA margins improved 50bps QoQ, mainly due to lower staff costs. Maruti
is seeing weakening retail demand with footfalls as well as conversions
dropping Feb onwards – in line with the findings of our recent dealer survey –
and sounded tentative on demand outlook. Management sounded sanguine on
component supply post the Japan earthquake and expects production to
remain stable. Slowing industry growth, rising commodity prices and
continuing competitive pressures are likely to keep Maruti’s margins subdued
in FY12. Stock performance could improve in 2HFY12 post Manesar plant
expansion and launch of new UV in 4Q. O-PF.
4Q results broadly inline with estimates
Maruti reported 4Q net profit of Rs6.6bn, flat YoY and 3% above estimates. 4Q
EBITDA at Rs10 bn was down 9% YoY and 1% below estimates. EBITDA margins
improved 50bps QoQ to 10.0%. RM/sales in 4Q was down 50bps QoQ due to
reclassification of toolings provided to vendors from raw material expense to gross
block. Staff costs dropped 34% QoQ due to write back of gratuity provisions and
absence of a one-time item of Rs720mn in 3Q. Tax rate fell 8.5% QoQ to 20.2%
due to the higher tax deduction benefit on R&D spend. Maruti has guided for R&D
spend of 1.4% of sales in FY12 from 1.1% in FY11 and a tax rate of 26-27%.
Weakening demand environment
Maruti is witnessing a weakness in the domestic demand environment due to
rising interest rates and fuel prices. The company is seeing a drop in footfalls as
well as conversions since Feb-11. This is in line with the findings of our recent
dealer survey where we observed a sharp increase in dealers reporting weakness
in retail demand over the last few months. We forecast industry volume growth to
slowdown to 16% in FY12 after two years of strong 25%+ growth.
Margins will remain under pressure in FY12
We believe that the 1% price hike in Apr is not sufficient to pass on the full extent
of input cost increases. The upcoming small car launches from Toyota, Honda and
Hyundai are likely to limit Maruti’s ability to take further price hikes.
Maintain estimates; stock likely to remain weak in 1H
We believe that Maruti’s stock will remain weak in 1HFY12 as we see downside to
street estimates for FY12 (we are 8% below consensus). Expansion of the
Manesar plant (which will help Maruti address rising waiting lists on diesel models)
and launch of a new UV in 4Q are some triggers, which could boost stock
performance in 2H. No change to estimates. O-PF stays.
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