Maruti Suzuki India Ltd. Earnings become hazy, Focus shifts to P/BV :Emkay

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Maruti Suzuki India Ltd.

Earnings become hazy, Focus shifts to P/BV

REDUCE

CMP: Rs948                                        Target Price: Rs900

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n     Earnings based valuations are not relevant due to lack of clarity. Concerned that margins could be structurally lower vs history, but for favorable currency/metal prices

n     Currency is a bigger risk. 1% change in assumptions affects margins by ~25bps and EPS by ~Rs2.5. Our FY13 assumption of Re/Yen at 1.64 is ~9% favorable vs current rates

n     Modeled FY13 domestic vols. at 376,772/922,441 units of diesel/petrol (61%/11% YoY). See downside risk due to  demand polarity and strong correlation with wealth effect

n     Valuing the stock at P/BV (1.5x) with a TP of Rs 900 (implying PE/EV-EBIDTA of 13x/6x). Do not see significant uptick in ROE/ROCE despite volume uptick, lower rating to REDUCE