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Operating results in line: MSIL's PAT at Rs 2.05bn (down 66% yoy) was ~7%
above our estimates, but 6% below the street. The variance with our estimates
was on account of higher-than-expected realisations (up 7% YoY) and a lowerthan-
estimated tax rate.
Realisations improve, margins decline: Realisations improved 7% QoQ due to
a higher proportion of diesel variants in the product mix and stronger currencyrelated
export realisations. EBITDA margins though continued their downward
trend to 5.3% (down 100bps QoQ). The impact of negative operating leverage
was visible, while currency-induced raw material cost pressures mounted.
The worst may have been over for margins: Going forward, EBITDA margins
are likely to show an improvement from the current levels on account of: (a)
operating leverage, (b) recent price hikes, and (c) further improvement in product
mix as the share of diesel variants could rise. However, margin improvement
could partially be offset by the lagged impact of foreign currency movements on
the vendor imports.
Maintain Neutral: With a resolution of the labour issues and currency rates now
stabilising, the worst for MSIL may well be over. In addition, incremental
competitive intensity in the small car segment is on a decline. However, we note
that: (a) demand has not shown any significant signs of a revival, and (b) the threat
of a higher duty on diesel cars persists.
We tweak our FY12 earnings downwards, while maintaining FY13E estimates
(based on a 8.5% EBITDA margin). We revise our target price upwards to Rs 1075
(increase multiple from 12.5x to 14x FY13E EPS) to reflect the relative stability in
exchange rates and potential improvement in EBITDA margins. The recent run-up
though prevents us from upgrading our rating. Maintain NEUTRAL.
Demand outlook: Retail sales in December were strong on a sequential basis though they were down 10% YoY. There is
no clear signal of a sustained revival in demand. Petrol vehicle demand continues to remain significantly weak. Exports
continue to be weak. However, the company believes that at some point in the future, demand could show a sudden revival.
Forex hedges: The company has taken cover with regard to the USD/JPY link for direct imports. However, the USD/INR
hedge still remains open. The company has just begun hedging its indirect exposure for vendors.
Fiat engines: The company will source diesel engines to the tune of 100,000 units p.a. The delivery should start from
February 2012. However, the company is still in the process of finalising the commercial agreement with Fiat.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Operating results in line: MSIL's PAT at Rs 2.05bn (down 66% yoy) was ~7%
above our estimates, but 6% below the street. The variance with our estimates
was on account of higher-than-expected realisations (up 7% YoY) and a lowerthan-
estimated tax rate.
Realisations improve, margins decline: Realisations improved 7% QoQ due to
a higher proportion of diesel variants in the product mix and stronger currencyrelated
export realisations. EBITDA margins though continued their downward
trend to 5.3% (down 100bps QoQ). The impact of negative operating leverage
was visible, while currency-induced raw material cost pressures mounted.
The worst may have been over for margins: Going forward, EBITDA margins
are likely to show an improvement from the current levels on account of: (a)
operating leverage, (b) recent price hikes, and (c) further improvement in product
mix as the share of diesel variants could rise. However, margin improvement
could partially be offset by the lagged impact of foreign currency movements on
the vendor imports.
Maintain Neutral: With a resolution of the labour issues and currency rates now
stabilising, the worst for MSIL may well be over. In addition, incremental
competitive intensity in the small car segment is on a decline. However, we note
that: (a) demand has not shown any significant signs of a revival, and (b) the threat
of a higher duty on diesel cars persists.
We tweak our FY12 earnings downwards, while maintaining FY13E estimates
(based on a 8.5% EBITDA margin). We revise our target price upwards to Rs 1075
(increase multiple from 12.5x to 14x FY13E EPS) to reflect the relative stability in
exchange rates and potential improvement in EBITDA margins. The recent run-up
though prevents us from upgrading our rating. Maintain NEUTRAL.
Demand outlook: Retail sales in December were strong on a sequential basis though they were down 10% YoY. There is
no clear signal of a sustained revival in demand. Petrol vehicle demand continues to remain significantly weak. Exports
continue to be weak. However, the company believes that at some point in the future, demand could show a sudden revival.
Forex hedges: The company has taken cover with regard to the USD/JPY link for direct imports. However, the USD/INR
hedge still remains open. The company has just begun hedging its indirect exposure for vendors.
Fiat engines: The company will source diesel engines to the tune of 100,000 units p.a. The delivery should start from
February 2012. However, the company is still in the process of finalising the commercial agreement with Fiat.
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