Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Annual report analysis
Key highlights from Maruti’s FY11 annual report are – 1) Free cash flow
dropped 40% YoY despite 25% higher volumes as margins contracted and
capex rose, 2) Cautious near-term demand outlook but more positive on longterm
demand, 3) Rising focus on alternate fuels (CNG) and initial steps
towards electric vehicles, 4) A growing focus on India R&D, 5) Aiming at
reducing indirect (via vendors) Yen exposure, 6) Strong growth in rural sales,
pre-owned car sales, spare parts and sales & service network in FY11. U-PF.
Weakening cash generation due to lower profitability and rising capex
In FY11, Maruti’s volumes rose 25% YoY but a sharp 350bps contraction in
EBITDA margins combined with a doubling of capex (pertaining to Manesar plant
expansion) led to a 40% drop in free cash flow. This is despite some improvement
in working capital. With volume growth having slipped, margins still under
pressure and capex rising further, we see FCF turning negative in FY12.
Positive on long-term demand
In the annual report, Maruti says that while near-term demand outlook is weak
due to rising interest rates and fuel prices, it is positive on long-term demand for
cars in India and expects the Indian passenger vehicle market to rise to 4.5-5.0m
units by FY16 (13-15% CAGR over next 5 years).
Rising focus on CNG, electric vehicles, India R&D
Commentary on prospects for CNG vehicle demand is very positive in the annual
report. Maruti says that running costs of CNG vehicles is 63% lower than petrol
and 46% lower than diesel vehicles. Maruti’s new ‘i-GPI’ CNG technology provides
performance similar to petrol driven vehicles. Maruti expects demand for CNG cars
to rise once CNG infrastructure improves. Maruti has also started some initial
work on electric and hybrid vehicles. There is also a strong focus on expanding
R&D capabilities in India and the upcoming R&D centre is an important step in the
same. R&D spend is now up to 1.2% of sales in FY11 (0.6% in FY10) and Maruti is
aiming at expanding R&D workforce by 22% in FY12.
Rising rural & pre-owned car sales; strong focus on network expansion
Rural sales have risen to 20% of total in FY11 from 3.5% in FY08. ‘True Value’
sales (Maruti’s pre-owned car business) are up 31% YoY, the bulk of which
translated into new car sales. Maruti expanded its sales outlets by 16% in FY11
and the cities covered by sales outlets by 20% to 666 cities. Maruti is also
targeting reduce the import dependence of its vendors over the next three years
to lower its own Yen exposure. Car industry growth remains weak, competition
continues to rise and valuations remain expensive. The hope of better industry
growth in FY13 remains but is by no means a certainty. U-PF stays.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Annual report analysis
Key highlights from Maruti’s FY11 annual report are – 1) Free cash flow
dropped 40% YoY despite 25% higher volumes as margins contracted and
capex rose, 2) Cautious near-term demand outlook but more positive on longterm
demand, 3) Rising focus on alternate fuels (CNG) and initial steps
towards electric vehicles, 4) A growing focus on India R&D, 5) Aiming at
reducing indirect (via vendors) Yen exposure, 6) Strong growth in rural sales,
pre-owned car sales, spare parts and sales & service network in FY11. U-PF.
Weakening cash generation due to lower profitability and rising capex
In FY11, Maruti’s volumes rose 25% YoY but a sharp 350bps contraction in
EBITDA margins combined with a doubling of capex (pertaining to Manesar plant
expansion) led to a 40% drop in free cash flow. This is despite some improvement
in working capital. With volume growth having slipped, margins still under
pressure and capex rising further, we see FCF turning negative in FY12.
Positive on long-term demand
In the annual report, Maruti says that while near-term demand outlook is weak
due to rising interest rates and fuel prices, it is positive on long-term demand for
cars in India and expects the Indian passenger vehicle market to rise to 4.5-5.0m
units by FY16 (13-15% CAGR over next 5 years).
Rising focus on CNG, electric vehicles, India R&D
Commentary on prospects for CNG vehicle demand is very positive in the annual
report. Maruti says that running costs of CNG vehicles is 63% lower than petrol
and 46% lower than diesel vehicles. Maruti’s new ‘i-GPI’ CNG technology provides
performance similar to petrol driven vehicles. Maruti expects demand for CNG cars
to rise once CNG infrastructure improves. Maruti has also started some initial
work on electric and hybrid vehicles. There is also a strong focus on expanding
R&D capabilities in India and the upcoming R&D centre is an important step in the
same. R&D spend is now up to 1.2% of sales in FY11 (0.6% in FY10) and Maruti is
aiming at expanding R&D workforce by 22% in FY12.
Rising rural & pre-owned car sales; strong focus on network expansion
Rural sales have risen to 20% of total in FY11 from 3.5% in FY08. ‘True Value’
sales (Maruti’s pre-owned car business) are up 31% YoY, the bulk of which
translated into new car sales. Maruti expanded its sales outlets by 16% in FY11
and the cities covered by sales outlets by 20% to 666 cities. Maruti is also
targeting reduce the import dependence of its vendors over the next three years
to lower its own Yen exposure. Car industry growth remains weak, competition
continues to rise and valuations remain expensive. The hope of better industry
growth in FY13 remains but is by no means a certainty. U-PF stays.
No comments:
Post a Comment