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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We think the worst is nearly over and shares fully reflect market share decline, labour unrest and
currency impact. To reflect these factors, we adjust our EPS forecasts. Response to the new
Swift is strong, and we think future new models will be well received. Upgrade to Buy as
risk/reward appears favourable.
Repeated labour unrest at Manesar plant leads worst market share fears to come true
Maruti Suzuki has seen sharp domestic sales and market share (-5ppt) declines in the past six
months due to weak demand for petrol cars and inability to supply diesel cars (produced at the
Manesar plant). We believe that the worst of the company’s market share decline is past, and that
efforts to return production to normal levels with the help of new capacity and hires should yield
fruit once ongoing labour trouble is put to rest, allowing it to benefit from strong bookings for the
new Swift. We expect market share to recover from the current 41% to reach 46.6% by FY14 as
new volume-segment releases over the next few quarters (the new Dzire, Alto variant and R3)
should also provide support.
Lower FY12-13F EPS due to yen impact and high sales discounts
In our view, weak sales volume, high sales discounts (+44% qoq in 2Q) and yen appreciation (in
2H) will have a dramatic impact on 2Q and 3Q profitability. Consequently, we cut our FY12F EPS
by 12.4%. However, we only cut our FY13F EPS by 5.9% to reflect the positive impact of a
localisation drive aimed at reducing yen imports by 3ppt pa
Favourable risk reward for interest rate-sensitive demand; upgrade to Buy
Maruti has underperformed the Sensex by 33% over the last two years. We believe the stock’s
current market price reflects the worst-case scenario and do not see potential Bloomberg
consensus EPS cuts having a drastic impact (we are now 17% below consensus). In our view,
the stock’s near-trough cyclical P/BV and EV/sales valuations present a favourable risk-reward
proposal. We upgrade to Buy based on 39% upside potential as we expect its cash-rich balance
sheet (23% of market cap) to be invested in its high-growth and ROE positive business. We see
concern over competition peaking in the coming month with the launches of the Honda Brio and
Hyundai HA – we believe any attendant weakness should be considered a buying opportunity. In
our view, currently slower industry growth should reduce aggression of competitors (capacity,
new products), which augurs well for Maruti.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We think the worst is nearly over and shares fully reflect market share decline, labour unrest and
currency impact. To reflect these factors, we adjust our EPS forecasts. Response to the new
Swift is strong, and we think future new models will be well received. Upgrade to Buy as
risk/reward appears favourable.
Repeated labour unrest at Manesar plant leads worst market share fears to come true
Maruti Suzuki has seen sharp domestic sales and market share (-5ppt) declines in the past six
months due to weak demand for petrol cars and inability to supply diesel cars (produced at the
Manesar plant). We believe that the worst of the company’s market share decline is past, and that
efforts to return production to normal levels with the help of new capacity and hires should yield
fruit once ongoing labour trouble is put to rest, allowing it to benefit from strong bookings for the
new Swift. We expect market share to recover from the current 41% to reach 46.6% by FY14 as
new volume-segment releases over the next few quarters (the new Dzire, Alto variant and R3)
should also provide support.
Lower FY12-13F EPS due to yen impact and high sales discounts
In our view, weak sales volume, high sales discounts (+44% qoq in 2Q) and yen appreciation (in
2H) will have a dramatic impact on 2Q and 3Q profitability. Consequently, we cut our FY12F EPS
by 12.4%. However, we only cut our FY13F EPS by 5.9% to reflect the positive impact of a
localisation drive aimed at reducing yen imports by 3ppt pa
Favourable risk reward for interest rate-sensitive demand; upgrade to Buy
Maruti has underperformed the Sensex by 33% over the last two years. We believe the stock’s
current market price reflects the worst-case scenario and do not see potential Bloomberg
consensus EPS cuts having a drastic impact (we are now 17% below consensus). In our view,
the stock’s near-trough cyclical P/BV and EV/sales valuations present a favourable risk-reward
proposal. We upgrade to Buy based on 39% upside potential as we expect its cash-rich balance
sheet (23% of market cap) to be invested in its high-growth and ROE positive business. We see
concern over competition peaking in the coming month with the launches of the Honda Brio and
Hyundai HA – we believe any attendant weakness should be considered a buying opportunity. In
our view, currently slower industry growth should reduce aggression of competitors (capacity,
new products), which augurs well for Maruti.
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