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Maruti Suzuki India (MSIL)
Initiate OW: The dawn approaches
We expect strong structural growth in India’s car industry;
Maruti is likely to be a key beneficiary
FY12 should see competition peak and margins bottom;
both are set to normalise in FY13/14
Initiate on Maruti with OW and TP of INR1,200; EPS to grow
at 27% CAGR in FY12-14e
Maruti to be a key beneficiary of industry growth. Maruti will have a disappointing FY12,
in our view, with sales set to fall near 6% and EBITDA margin down 150bps. Admittedly,
headwinds are likely to persist near-term as well, as margins remain under pressure and the
sales growth revival is gradual. However, we see margins bottoming and competition peaking
in FY12, with both set to normalise in FY13/14. As a result, Maruti’s earnings are expected to
grow at a CAGR of c27% in FY12-14. Aside from robust industry growth and an improving
EBITDA margin, we see the company benefiting from a stronger go-to-market with the labour
disputes behind it and a slew of new models in the pipeline.
Competition is likely to moderate in FY13 from the peak seen in FY12. Along with the
launch of new models and variants in 2012, Maruti should regain some of its lost market
share. While it may have lost some of its customer base permanently, we expect it will
retain many customers due to its strong service network and competitively priced sparepart
and maintenance services.
We believe the industry is set for years of strong structural growth. We believe India’s
car industry has years of strong growth ahead of it. Our confidence stems from empirical
data from other markets, which suggests that after penetration passes 20 cars per thousand
people, industry growth tends to accelerate. India, we believe, is close to this inflection point
and is unlikely to see a repeat of the prolonged slowdown in car sales in 2011.
We initiate on Maruti with OW and a target price of INR1,200, based on a 15% discount
to our DCF-based valuation. We are not factoring a significant improvement in margins.
Increases in commodity prices and Japanese yen appreciation are the key downside risks.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Maruti Suzuki India (MSIL)
Initiate OW: The dawn approaches
We expect strong structural growth in India’s car industry;
Maruti is likely to be a key beneficiary
FY12 should see competition peak and margins bottom;
both are set to normalise in FY13/14
Initiate on Maruti with OW and TP of INR1,200; EPS to grow
at 27% CAGR in FY12-14e
Maruti to be a key beneficiary of industry growth. Maruti will have a disappointing FY12,
in our view, with sales set to fall near 6% and EBITDA margin down 150bps. Admittedly,
headwinds are likely to persist near-term as well, as margins remain under pressure and the
sales growth revival is gradual. However, we see margins bottoming and competition peaking
in FY12, with both set to normalise in FY13/14. As a result, Maruti’s earnings are expected to
grow at a CAGR of c27% in FY12-14. Aside from robust industry growth and an improving
EBITDA margin, we see the company benefiting from a stronger go-to-market with the labour
disputes behind it and a slew of new models in the pipeline.
Competition is likely to moderate in FY13 from the peak seen in FY12. Along with the
launch of new models and variants in 2012, Maruti should regain some of its lost market
share. While it may have lost some of its customer base permanently, we expect it will
retain many customers due to its strong service network and competitively priced sparepart
and maintenance services.
We believe the industry is set for years of strong structural growth. We believe India’s
car industry has years of strong growth ahead of it. Our confidence stems from empirical
data from other markets, which suggests that after penetration passes 20 cars per thousand
people, industry growth tends to accelerate. India, we believe, is close to this inflection point
and is unlikely to see a repeat of the prolonged slowdown in car sales in 2011.
We initiate on Maruti with OW and a target price of INR1,200, based on a 15% discount
to our DCF-based valuation. We are not factoring a significant improvement in margins.
Increases in commodity prices and Japanese yen appreciation are the key downside risks.
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