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Stays on course; maintain BUY
Maruti Suzuki India (MSIL)’s Q4FY11 operating results were
marginally better than our estimates. Operating margin stood
at 10% (vs our estimate: 9.7%). However, adjusted PAT at
Rs6.6bn was much higher than our estimate of Rs6.1bn largely
on account of lower-than-expected tax rate (20.2% vs
estimated 28.7%). Despite increasing competition, MSIL was
able to maintain its market share in the compact car segment
at 55.8% in FY11 compared to 56.1% in FY10. We continue to
remain positive on the stock and maintain our BUY rating with
revised target price of Rs1,562 (earlier: Rs1,590).
Volume growth propels revenue: Q4 revenue increased 20%
YoY and 6% QoQ revenue growth to Rs101bn (estimate:
Rs99.7bn) driven by 20% YoY (and 4% QoQ) volume growth.
Average net realizations remained flat YoY. However, on a
QoQ basis, they improved by 2.4% vs our estimate of 1.3%.
Margin higher than expected: EBITDA margin contracted
318bp YoY, but improved 51bp QoQ to 10.0% (our estimate:
9.7%). EBITDA margin was higher-than-estimated mainly on
account of lower employee costs (Rs1.53bn against Rs1.86bn
estimated, write-back of Rs200mn on account of excess
provision) and better-than-expected revenue growth.
Low tax rate boosts adjusted PAT: Adjusted PAT stood at
Rs6.6bn (up 0.5% YoY and 17% QoQ), higher than our estimate
of Rs6.1bn. The variance is explained by the low tax rate
because of R&D benefits during the quarter (tax rate in Q4 was
20.2% vs average of 28.6% during 9MFY11).
Earnings estimates lowered: We have cut our earnings
estimates by 4.9% for FY12E and 6.6% for FY13E due to higherthan-
expected pressure on EBITDA margins and lower other
income.
Valuation and Recommendations: At CMP of Rs1,327, the
stock trades at 14.9x FY12E core EPS of Rs71.8 and 12.3x FY13E
core EPS of Rs83.9. We continue to remain positive on the
stock considering the company’s success in maintaining
market share despite competition. We reiterate our BUY rating
with a revised target price of Rs1,562 (core business valued at
15.3x FY13E earnings + Rs84 as value of investments in
subsidiaries + Rs195 value of cash and cash equivalents).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Stays on course; maintain BUY
Maruti Suzuki India (MSIL)’s Q4FY11 operating results were
marginally better than our estimates. Operating margin stood
at 10% (vs our estimate: 9.7%). However, adjusted PAT at
Rs6.6bn was much higher than our estimate of Rs6.1bn largely
on account of lower-than-expected tax rate (20.2% vs
estimated 28.7%). Despite increasing competition, MSIL was
able to maintain its market share in the compact car segment
at 55.8% in FY11 compared to 56.1% in FY10. We continue to
remain positive on the stock and maintain our BUY rating with
revised target price of Rs1,562 (earlier: Rs1,590).
Volume growth propels revenue: Q4 revenue increased 20%
YoY and 6% QoQ revenue growth to Rs101bn (estimate:
Rs99.7bn) driven by 20% YoY (and 4% QoQ) volume growth.
Average net realizations remained flat YoY. However, on a
QoQ basis, they improved by 2.4% vs our estimate of 1.3%.
Margin higher than expected: EBITDA margin contracted
318bp YoY, but improved 51bp QoQ to 10.0% (our estimate:
9.7%). EBITDA margin was higher-than-estimated mainly on
account of lower employee costs (Rs1.53bn against Rs1.86bn
estimated, write-back of Rs200mn on account of excess
provision) and better-than-expected revenue growth.
Low tax rate boosts adjusted PAT: Adjusted PAT stood at
Rs6.6bn (up 0.5% YoY and 17% QoQ), higher than our estimate
of Rs6.1bn. The variance is explained by the low tax rate
because of R&D benefits during the quarter (tax rate in Q4 was
20.2% vs average of 28.6% during 9MFY11).
Earnings estimates lowered: We have cut our earnings
estimates by 4.9% for FY12E and 6.6% for FY13E due to higherthan-
expected pressure on EBITDA margins and lower other
income.
Valuation and Recommendations: At CMP of Rs1,327, the
stock trades at 14.9x FY12E core EPS of Rs71.8 and 12.3x FY13E
core EPS of Rs83.9. We continue to remain positive on the
stock considering the company’s success in maintaining
market share despite competition. We reiterate our BUY rating
with a revised target price of Rs1,562 (core business valued at
15.3x FY13E earnings + Rs84 as value of investments in
subsidiaries + Rs195 value of cash and cash equivalents).
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