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MARUTI SUZUKI
Key takeaways
The company expects domestic volume growth to improve due to strong order book of
new Swift. New Swift has received 50,000 orders. Capacity of Swift has been increased
from 12,000 units to 18,000 units/month. Diesel engine capacity is also being increased
from 240,000 currently to 290,000 units by September 2011.
Current installed capacity is around 1.2 mn units which will be increased to 1.5 mn units
by September and then to 1.8 mn by September 2012. The company indicated they could
produce 10% higher than the installed capacity if demand is higher than supply. Hence,
the company does not face any supply constraints as of now except for diesel engine
capacity which is being increased in a phased manner.
The company indicated that export volume growth is likely to decline by 10% yoy in
FY2012E from earlier expectations of flat growth due to decline in European volumes.
The company has hedged Euro and Dollar exports at very favorable rates for FY2012E
which could aid export realizations.
The company expects raw material costs to decline from 2HFY12E due to a decline in
aluminium and rubber prices. However, a strong Yen could have an impact on gross
margins. The company has hedged the Yen till October 2011 and has a net exposure of
27% of sales in Yen. 8% of sales are direct imports in Yen, 5% of sales are royalty
expense and rest 14% of sales are indirect imports.
Discounts have increased from 1QFY12 levels in 2QFY12 and could impact margins, in
our view. Discounts averaged Rs9,300/vehicle in 1QFY12 much lower than
Rs10,500/vehicle in 4QFY11 as the company had cut discounts by 30% in April 2011.
The company plans to aggressive pursue its localization strategy to reduce costs and
reduce impact of Yen. The company plans to reduce imported content by 3% of sales
every year and is also looking at options of sourcing from Japanese vendors in South East
Asian countries to reduce costs.
R&D expenses as a percentage of sales are also likely to increase to 1.4% of sales in
FY2012E versus 1.1% of sales in FY2011. Tax rate is likely to end at 22-23% for FY2012E
due to increase in R&D expenses and capitalization of capex done at the Manesar plant.
The company has set a target of improving EBITDA margins to 12% (by 2% from current
levels) over the next 3 years through cost reduction initiatives.
The company has already spent ~Rs1.4 bn in capex in the first 5 months of FY2012 versus
Rs4 bn target capex spend for FY2012E.
We maintain our BUY rating on the stock due to attractive valuations (trades at 10.8X
multiple on our FY2013E EPS). Our target price of Rs1,515 is based on 14X PE on our
FY2013E consolidated EPS estimate.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MARUTI SUZUKI
Key takeaways
The company expects domestic volume growth to improve due to strong order book of
new Swift. New Swift has received 50,000 orders. Capacity of Swift has been increased
from 12,000 units to 18,000 units/month. Diesel engine capacity is also being increased
from 240,000 currently to 290,000 units by September 2011.
Current installed capacity is around 1.2 mn units which will be increased to 1.5 mn units
by September and then to 1.8 mn by September 2012. The company indicated they could
produce 10% higher than the installed capacity if demand is higher than supply. Hence,
the company does not face any supply constraints as of now except for diesel engine
capacity which is being increased in a phased manner.
The company indicated that export volume growth is likely to decline by 10% yoy in
FY2012E from earlier expectations of flat growth due to decline in European volumes.
The company has hedged Euro and Dollar exports at very favorable rates for FY2012E
which could aid export realizations.
The company expects raw material costs to decline from 2HFY12E due to a decline in
aluminium and rubber prices. However, a strong Yen could have an impact on gross
margins. The company has hedged the Yen till October 2011 and has a net exposure of
27% of sales in Yen. 8% of sales are direct imports in Yen, 5% of sales are royalty
expense and rest 14% of sales are indirect imports.
Discounts have increased from 1QFY12 levels in 2QFY12 and could impact margins, in
our view. Discounts averaged Rs9,300/vehicle in 1QFY12 much lower than
Rs10,500/vehicle in 4QFY11 as the company had cut discounts by 30% in April 2011.
The company plans to aggressive pursue its localization strategy to reduce costs and
reduce impact of Yen. The company plans to reduce imported content by 3% of sales
every year and is also looking at options of sourcing from Japanese vendors in South East
Asian countries to reduce costs.
R&D expenses as a percentage of sales are also likely to increase to 1.4% of sales in
FY2012E versus 1.1% of sales in FY2011. Tax rate is likely to end at 22-23% for FY2012E
due to increase in R&D expenses and capitalization of capex done at the Manesar plant.
The company has set a target of improving EBITDA margins to 12% (by 2% from current
levels) over the next 3 years through cost reduction initiatives.
The company has already spent ~Rs1.4 bn in capex in the first 5 months of FY2012 versus
Rs4 bn target capex spend for FY2012E.
We maintain our BUY rating on the stock due to attractive valuations (trades at 10.8X
multiple on our FY2013E EPS). Our target price of Rs1,515 is based on 14X PE on our
FY2013E consolidated EPS estimate.
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