Maruti Suzuki :Action: We downgrade MSIL to Neutral with a new TP of INR1153: Nomura Research

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Not attractive unless JPY moves in favour
Strong volume growth in FY13F
and increase in localization not
enough to offset JPY impact

Action: We downgrade MSIL to Neutral with a new TP of INR1153
MSIL had a weak H1FY12, impacted by strikes and weak demand. Given
the low base, we expect volume growth to be strong in FY13F. However,
that may not be enough to offset the impact of 12% JPY appreciation over
the last four months, which will impact margins from Q3FY12 onwards.
Targeted localization over the next three years will compensate for a mere
5% JPY appreciation, in our view. We prefer Tata Motors and Ashok
Leyland as plays on an improving interest-rate scenario next year.
Catalysts: Downsides from weaker demand, tough competition; JPY
depreciation could be positive
 Weaker-than-expected demand: We expect volume growth to improve
to 15% in FY13F. In case the demand remains weak due to factors like
steep competition, increased duty on diesel cars or further increases in
fuel prices, it could have a material negative impact on our estimates.
 Competition to limit ROEs: While we expect that MSIL will continue to
maintain a leadership position, we believe that it will come at the cost of
lower ROEs. Pricing power to offset increases in costs will be limited.
 JPY depreciation could be a positive: 5% depreciation in JPY from its
current levels could lead to up to 100bps margin expansion for MSIL.
Valuation: TP of INR1153; based on 14x 1-yr fwd consolidated EPS
We value MSIL at 14x one-year forward consolidated EPS (average of
FY13F and FY14F) of INR82.4. We note that the ROEs of the company
have declined to 11% and there is a risk the stock can de-rate further if the
company is not able to achieve targeted localization