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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
A new phase of competition
Maruti will see a sharp rise in competition in coming quarters post the recent
small car launches by Hyundai and Honda, which will together compete with
~50% of Maruti’s domestic volumes. Hyundai’s ‘Eon’ will be the first head-on
competition for Maruti’s top selling car ‘Alto’, which alone contributes ~25%
of Maruti’s volumes. The labour strife at the Manesar plant has worsened and
will impact Maruti’s festive season sales. A stronger Yen will also hurt margins
in 2H, especially given weak pricing power. We cut FY12-14 EPS estimates by
5-10% and maintain U-PF with a lower target price of Rs1,075.
Competition rising in Maruti’s stronghold
Maruti is entering a new phase of competition post the recent small car launches
by Hyundai and Honda, which will together compete with ~45-50% of Maruti’s
domestic volumes. Hyundai has launched its entry-level compact car ‘Eon’ at an
attractive price of Rs269-371K (ex-showroom Delhi). ‘Eon’ will be the first headon
competition for Maruti’s top selling car ‘Alto’ (priced at Rs234-334K), which
alone contributes ~25% of Maruti’s domestic volumes. Hyundai is targeting sales
of 12,500 units/month of ‘Eon’, which is about half the monthly sales of ‘Alto’.
Honda’s recently launched small car ‘Brio’, priced at Rs395-510K, will compete
with the petrol versions of Maruti’s mid-range compact cars – WagonR, Estilo, AStar,
Ritz and Swift, which contribute another 20-25% of Maruti’s volumes. Our
channel checks indicate that the car has received a strong response. We note that
Hyundai and Honda enjoy a much better brand perception among Indian car
buyers than the new entrants of 2010 (GM, Ford, VW, Nissan).
Labour strike at Manesar plant is worsening
The labour situation at Maruti’s Manesar plant appears to have worsened after the
workers went on a “stay-in” strike last week. The strike has also spread to Suzuki
Powertrain (associate company of Maruti), which provides diesel engines and
transmissions to Maruti, and is impacting production at Maruti’s Gurgaon plant as
well. This worsening of events can meaningfully dent Maruti’s festival season
sales. Maruti’s diesel car customers, already on up to 10 month waiting lists,
might decide to switch to others cars if the strike prolongs. Furthermore, any
potential damage to the equipment at Manesar would mean that the normalization
of operations could take much longer than anticipated.
Cutting FY12-14 EPS estimates by 5-10%; maintain U-PF
We have cut our car industry growth forecast for FY12 to 5% (10% earlier) given
a disappointing 0.6% YoY growth in YTD-FY12. We are now forecasting 4% YoY
decline in Maruti’s volumes in FY12 despite optimistically assuming normalization
of production levels by end-Nov. Maruti’s 2H margins will be under pressure due
to its un-hedged JPY exposure as JPY has appreciated by 17% from 1Q levels. We
cut our FY12-14 EPS estimates by 5-10%. U-PF stays.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
A new phase of competition
Maruti will see a sharp rise in competition in coming quarters post the recent
small car launches by Hyundai and Honda, which will together compete with
~50% of Maruti’s domestic volumes. Hyundai’s ‘Eon’ will be the first head-on
competition for Maruti’s top selling car ‘Alto’, which alone contributes ~25%
of Maruti’s volumes. The labour strife at the Manesar plant has worsened and
will impact Maruti’s festive season sales. A stronger Yen will also hurt margins
in 2H, especially given weak pricing power. We cut FY12-14 EPS estimates by
5-10% and maintain U-PF with a lower target price of Rs1,075.
Competition rising in Maruti’s stronghold
Maruti is entering a new phase of competition post the recent small car launches
by Hyundai and Honda, which will together compete with ~45-50% of Maruti’s
domestic volumes. Hyundai has launched its entry-level compact car ‘Eon’ at an
attractive price of Rs269-371K (ex-showroom Delhi). ‘Eon’ will be the first headon
competition for Maruti’s top selling car ‘Alto’ (priced at Rs234-334K), which
alone contributes ~25% of Maruti’s domestic volumes. Hyundai is targeting sales
of 12,500 units/month of ‘Eon’, which is about half the monthly sales of ‘Alto’.
Honda’s recently launched small car ‘Brio’, priced at Rs395-510K, will compete
with the petrol versions of Maruti’s mid-range compact cars – WagonR, Estilo, AStar,
Ritz and Swift, which contribute another 20-25% of Maruti’s volumes. Our
channel checks indicate that the car has received a strong response. We note that
Hyundai and Honda enjoy a much better brand perception among Indian car
buyers than the new entrants of 2010 (GM, Ford, VW, Nissan).
Labour strike at Manesar plant is worsening
The labour situation at Maruti’s Manesar plant appears to have worsened after the
workers went on a “stay-in” strike last week. The strike has also spread to Suzuki
Powertrain (associate company of Maruti), which provides diesel engines and
transmissions to Maruti, and is impacting production at Maruti’s Gurgaon plant as
well. This worsening of events can meaningfully dent Maruti’s festival season
sales. Maruti’s diesel car customers, already on up to 10 month waiting lists,
might decide to switch to others cars if the strike prolongs. Furthermore, any
potential damage to the equipment at Manesar would mean that the normalization
of operations could take much longer than anticipated.
Cutting FY12-14 EPS estimates by 5-10%; maintain U-PF
We have cut our car industry growth forecast for FY12 to 5% (10% earlier) given
a disappointing 0.6% YoY growth in YTD-FY12. We are now forecasting 4% YoY
decline in Maruti’s volumes in FY12 despite optimistically assuming normalization
of production levels by end-Nov. Maruti’s 2H margins will be under pressure due
to its un-hedged JPY exposure as JPY has appreciated by 17% from 1Q levels. We
cut our FY12-14 EPS estimates by 5-10%. U-PF stays.
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