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Maruti Suzuki India Ltd (MSIL)
OW: In-line quarter, but stock run-up factors in a lot of
positives
Maruti reports an in-line quarter. Outlook remains positive –
for both sales growth and margins
However, the stock is up +25% from the recent bottom (in
mid December), factoring in a lot of these positives
The stock could remain range-bound near term, looking for
more visibility on FY13 sales growth. We remain OW with an
unchanged TP of INR1,200
Maruti reported a broadly in-line quarter with an EBITDA margin of 5.4%, down 120bp q-o-q, and
EPS of INR7.12, down 14.4% q-o-q. Realisations improved 7% q-o-q, on the back of better product
mix and better export realisation (owing to INR depreciation). While the yen impact was close to
1% of sales in this quarter (MTM losses), it is likely to moderate in the coming quarters with the
recent yen depreciation. The stock has seen a strong run-up in the past few weeks, up +25% from
the recent bottom (since mid-December). In our view, upside from these levels will be largely
contingent on improving sales, which will be gradual at best and influenced by both industry growth
pick-up and moderating competition. We therefore believe the stock may remain range-bound in the
near term, and we suggest buying on any declines. We continue to believe Maruti is unlikely to lose
significant market share in FY13 and the new launches and servicing credibility would derive
growth in FY13/14 (see our report, ‘The Dawn Approaches’, 28 November 2011, for detailed
analysis on demand and competition).
Demand outlook: The company sounded optimistic regarding recovery in car sales as buyers get
accustomed to increased petrol prices. Diesel engine procurement from Fiat is likely to commence
from next month and provide 100,000 engines in the full year. Furthermore, the company had an
impact of 40,000 cars in the 3Q quarter (owing to labour strikes), which should normalise in the
coming quarters. We expect the company to grow sales by 17% in FY13e and 12% in FY14e.
Margins should improve gradually from the bottom of 3Q: We expect margins to improve
gradually from the lows of 5.4% in 3Q12. Stronger growth in sales (operating leverage) and lower raw
material costs should drive EBITDA margin expansion in FY13. Furthermore, the yen has already
depreciated by 5% YTD and any further depreciation could have a significant benefit on profitability.
Forecasts and valuations: We remain OW with an unchanged TP of INR1,200, valuing the
company on DCF, and make no changes to our forecasts. Our FY12 margin estimates have some
downside risk, but it is unlikely to influence the stock materially at this stage.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Maruti Suzuki India Ltd (MSIL)
OW: In-line quarter, but stock run-up factors in a lot of
positives
Maruti reports an in-line quarter. Outlook remains positive –
for both sales growth and margins
However, the stock is up +25% from the recent bottom (in
mid December), factoring in a lot of these positives
The stock could remain range-bound near term, looking for
more visibility on FY13 sales growth. We remain OW with an
unchanged TP of INR1,200
Maruti reported a broadly in-line quarter with an EBITDA margin of 5.4%, down 120bp q-o-q, and
EPS of INR7.12, down 14.4% q-o-q. Realisations improved 7% q-o-q, on the back of better product
mix and better export realisation (owing to INR depreciation). While the yen impact was close to
1% of sales in this quarter (MTM losses), it is likely to moderate in the coming quarters with the
recent yen depreciation. The stock has seen a strong run-up in the past few weeks, up +25% from
the recent bottom (since mid-December). In our view, upside from these levels will be largely
contingent on improving sales, which will be gradual at best and influenced by both industry growth
pick-up and moderating competition. We therefore believe the stock may remain range-bound in the
near term, and we suggest buying on any declines. We continue to believe Maruti is unlikely to lose
significant market share in FY13 and the new launches and servicing credibility would derive
growth in FY13/14 (see our report, ‘The Dawn Approaches’, 28 November 2011, for detailed
analysis on demand and competition).
Demand outlook: The company sounded optimistic regarding recovery in car sales as buyers get
accustomed to increased petrol prices. Diesel engine procurement from Fiat is likely to commence
from next month and provide 100,000 engines in the full year. Furthermore, the company had an
impact of 40,000 cars in the 3Q quarter (owing to labour strikes), which should normalise in the
coming quarters. We expect the company to grow sales by 17% in FY13e and 12% in FY14e.
Margins should improve gradually from the bottom of 3Q: We expect margins to improve
gradually from the lows of 5.4% in 3Q12. Stronger growth in sales (operating leverage) and lower raw
material costs should drive EBITDA margin expansion in FY13. Furthermore, the yen has already
depreciated by 5% YTD and any further depreciation could have a significant benefit on profitability.
Forecasts and valuations: We remain OW with an unchanged TP of INR1,200, valuing the
company on DCF, and make no changes to our forecasts. Our FY12 margin estimates have some
downside risk, but it is unlikely to influence the stock materially at this stage.
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