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Key Takeaways
Festive season critical for 2HFY12 recovery and 5-10% growth guidance
Maruti Suzuki (MSIL) has guided 5-10% volume growth for FY12, as against ~7%
de-growth in FY12 YTD (~32,000 units lost due to strike and discontinuation of old
Swift). It expects growth to be critically dependent on festive season demand. While
inquiries have grown by 30%, conversion rate remains poor due to higher cost of
ownership and increase in time taken for loan approval.
While demand growth in the top 10 cities and rural markets remains intact, demand
in middle India (between top-10 cities and rural markets) is severely impacted.
Premium compact cars growth remains intact due to availability of diesel versions.
The new Swift, launched on 17 August, has received 70,000 bookings and is likely
to register monthly volumes of 16,000-17,000 against ~12,000 for its older version.
Currently, the new Swift has a waiting period of three months.
MSIL expects realizations to increase on account of improvement in product mix,
but this could be diluted by higher discounts in 2QFY12.
Margins under pressure in 2QFY12, but to improve in 2HFY12 and FY13
MSIL expects 2QFY12 EBITDA margin to come under pressure, impacted by adverse
exchange rate for JPY on vendor imports and direct imports (hedged at a slightly
unfavorable rate than 1QFY12) and higher discounts.
However, it expects margins to improve in 2HFY12 due to (a) pick-up in demand, (b)
savings in RM cost, and (c) lower discounts.
For FY13, MSIL is targeting 100-150bp savings in cost, driven by its localization
program, which was implemented last year. It is targeting to reduce its vendor
imports from 14% of sales to 6-7% in three years beginning FY12.
Other takeaways
It expects diesel engine capacity addition (by 50,000 units to 290,000 units) and
phase-I of Manesar (of 250,000 units) to be operational by September 2011 and
phase-II at Manesar (of another 250,000 units) by September 2012.
The management is not overtly worried about the aggressively priced Honda Jazz,
as it believes that such aggressive price reduction does not go well with existing car
owners and financiers (as residual value declines). Also, aggressive price cuts on
existing models do not help due to lack of 'novelty' factor (e.g. Skoda Fabia).
It plans to expand its dealer network to 1,500 from 933 outlets (as of March 2011).
Valuation and view
We see limited downside to MSIL's margins from the current levels, unless there is
significant adverse forex movement. The stock trades at 13.6x FY12E and 11.5x FY13E
consolidated EPS, and 9.4x FY12E and 7.8x FY13E CEPS. Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Festive season critical for 2HFY12 recovery and 5-10% growth guidance
Maruti Suzuki (MSIL) has guided 5-10% volume growth for FY12, as against ~7%
de-growth in FY12 YTD (~32,000 units lost due to strike and discontinuation of old
Swift). It expects growth to be critically dependent on festive season demand. While
inquiries have grown by 30%, conversion rate remains poor due to higher cost of
ownership and increase in time taken for loan approval.
While demand growth in the top 10 cities and rural markets remains intact, demand
in middle India (between top-10 cities and rural markets) is severely impacted.
Premium compact cars growth remains intact due to availability of diesel versions.
The new Swift, launched on 17 August, has received 70,000 bookings and is likely
to register monthly volumes of 16,000-17,000 against ~12,000 for its older version.
Currently, the new Swift has a waiting period of three months.
MSIL expects realizations to increase on account of improvement in product mix,
but this could be diluted by higher discounts in 2QFY12.
Margins under pressure in 2QFY12, but to improve in 2HFY12 and FY13
MSIL expects 2QFY12 EBITDA margin to come under pressure, impacted by adverse
exchange rate for JPY on vendor imports and direct imports (hedged at a slightly
unfavorable rate than 1QFY12) and higher discounts.
However, it expects margins to improve in 2HFY12 due to (a) pick-up in demand, (b)
savings in RM cost, and (c) lower discounts.
For FY13, MSIL is targeting 100-150bp savings in cost, driven by its localization
program, which was implemented last year. It is targeting to reduce its vendor
imports from 14% of sales to 6-7% in three years beginning FY12.
Other takeaways
It expects diesel engine capacity addition (by 50,000 units to 290,000 units) and
phase-I of Manesar (of 250,000 units) to be operational by September 2011 and
phase-II at Manesar (of another 250,000 units) by September 2012.
The management is not overtly worried about the aggressively priced Honda Jazz,
as it believes that such aggressive price reduction does not go well with existing car
owners and financiers (as residual value declines). Also, aggressive price cuts on
existing models do not help due to lack of 'novelty' factor (e.g. Skoda Fabia).
It plans to expand its dealer network to 1,500 from 933 outlets (as of March 2011).
Valuation and view
We see limited downside to MSIL's margins from the current levels, unless there is
significant adverse forex movement. The stock trades at 13.6x FY12E and 11.5x FY13E
consolidated EPS, and 9.4x FY12E and 7.8x FY13E CEPS. Buy.
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