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Prepares for strong demand after near-term headwinds
Focus on alternative fuels, to boost sales network, cut costs
Long-term outlook positive with 15% volume CAGR over FY11-16; Capacity
addition reflects MSIL's preparedness for strong demand.
Focus on alternative fuels to counter rising petrol prices, enhance sales &
service network.
Targets vendor localizations to cut forex exposure and save costs.
Downgrading estimates by 7.5% for FY12 and FY13; Maintain Buy.
Long-term outlook positive with 15% volume CAGR (FY11-16E)…: Despite shortterm
headwinds, Maruti Suzuki (MSIL) expects strong demand with volumes to double
over the next five years to 4.5m-5m units and CAGR of 10-12% through the rest of the
decade. MSIL believes Suzuki Motor Corporation's design philosophy of aggressive
and sporty cars, K-series technology and the popularity of the diesel car will enable
MSIL to maintain leadership.
… reflecting MSIL's preparedness in capacity addition: Based on its positive
volume outlook, MSIL is expanding capacity at Manesar. A second line of 0.25m
units has started operations in September 2011 and a third line of 0.25m units will
start by September 2012, taking total capacity to 1.9m units. Due to a possible
increase in small-car exports and the need to cut risks of production disruption, MSIL
plans to set up a 1m-unit capacity plant in Gujarat. It has broad-based exports to
dilute the impact of a slowdown in the EU exports.
MSIL to focus on alternative fuels to counter rising petrol prices: Sales have
risen of vehicles powered by alternative fuels due to rising petrol prices. The proportion
of diesel (volumes) increased from 60% to 80% among available models (~20% of
total volumes). MSIL will increase its diesel-engine capacity (in the SPV Suzuki
Powertrain) from 0.25m to 0.29m units by September 2011. It is focusing on promoting
CNG cars based on its superior i-GPI CNG technology.
Strengthening sales and service network: MSIL's focus is on widening its sales
and service network, its key strength. In FY11 it added 191 sales outlets, totaling 993
outlets in 668 cities. It increased service outlets by 206 to 2,946 outlets in 1,395
cities. Over the past four years rural sales contribution increased, contributing ~20%
to domestic sales. About 40% of MSIL's sales outlets are in the rural format, with
scaled-down investment, enabling viability on lower volumes.
Aims at localization of imported parts to cut forex exposure, costs: To cut
exposure to the yen, MSIL increased focus on localization of imported components.
MSIL has a three-year roadmap beginning FY13 to cut vendor imports 600-700bp
from 14-15% of revenue. MSIL is considering opportunities from FTAs and other
arrangements for source substitution of imported technologically complex items.
Downgrading estimates by 7.5%; Maintain Buy: We are downgrading consolidated
EPS 7.5% for FY12 and FY13 to INR79.1 and INR93.8 respectively, as we lower
FY12 volume estimates to 1.27m units (flat) and estimate EBITDA margin decline of
20bp to 9.3%. The stock trades at 11.6x FY13E consolidated EPS and 7.7x FY13E
consolidated EPS. Maintain Buy with a target price of INR1,418 (~10x FY13E
consolidated EPS).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Prepares for strong demand after near-term headwinds
Focus on alternative fuels, to boost sales network, cut costs
Long-term outlook positive with 15% volume CAGR over FY11-16; Capacity
addition reflects MSIL's preparedness for strong demand.
Focus on alternative fuels to counter rising petrol prices, enhance sales &
service network.
Targets vendor localizations to cut forex exposure and save costs.
Downgrading estimates by 7.5% for FY12 and FY13; Maintain Buy.
Long-term outlook positive with 15% volume CAGR (FY11-16E)…: Despite shortterm
headwinds, Maruti Suzuki (MSIL) expects strong demand with volumes to double
over the next five years to 4.5m-5m units and CAGR of 10-12% through the rest of the
decade. MSIL believes Suzuki Motor Corporation's design philosophy of aggressive
and sporty cars, K-series technology and the popularity of the diesel car will enable
MSIL to maintain leadership.
… reflecting MSIL's preparedness in capacity addition: Based on its positive
volume outlook, MSIL is expanding capacity at Manesar. A second line of 0.25m
units has started operations in September 2011 and a third line of 0.25m units will
start by September 2012, taking total capacity to 1.9m units. Due to a possible
increase in small-car exports and the need to cut risks of production disruption, MSIL
plans to set up a 1m-unit capacity plant in Gujarat. It has broad-based exports to
dilute the impact of a slowdown in the EU exports.
MSIL to focus on alternative fuels to counter rising petrol prices: Sales have
risen of vehicles powered by alternative fuels due to rising petrol prices. The proportion
of diesel (volumes) increased from 60% to 80% among available models (~20% of
total volumes). MSIL will increase its diesel-engine capacity (in the SPV Suzuki
Powertrain) from 0.25m to 0.29m units by September 2011. It is focusing on promoting
CNG cars based on its superior i-GPI CNG technology.
Strengthening sales and service network: MSIL's focus is on widening its sales
and service network, its key strength. In FY11 it added 191 sales outlets, totaling 993
outlets in 668 cities. It increased service outlets by 206 to 2,946 outlets in 1,395
cities. Over the past four years rural sales contribution increased, contributing ~20%
to domestic sales. About 40% of MSIL's sales outlets are in the rural format, with
scaled-down investment, enabling viability on lower volumes.
Aims at localization of imported parts to cut forex exposure, costs: To cut
exposure to the yen, MSIL increased focus on localization of imported components.
MSIL has a three-year roadmap beginning FY13 to cut vendor imports 600-700bp
from 14-15% of revenue. MSIL is considering opportunities from FTAs and other
arrangements for source substitution of imported technologically complex items.
Downgrading estimates by 7.5%; Maintain Buy: We are downgrading consolidated
EPS 7.5% for FY12 and FY13 to INR79.1 and INR93.8 respectively, as we lower
FY12 volume estimates to 1.27m units (flat) and estimate EBITDA margin decline of
20bp to 9.3%. The stock trades at 11.6x FY13E consolidated EPS and 7.7x FY13E
consolidated EPS. Maintain Buy with a target price of INR1,418 (~10x FY13E
consolidated EPS).
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