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http://www.kotaksecurities.com/pdf/dmb/MorningInsight30032012.pdf
MARUTI SUZUKI INDIA LIMITED (MSIL)
PRICE: RS.1306 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.1368 FY13E P/E: 14.3X
‰ After going through a difficult patch in FY12, situation for MSIL has improved significantly thereby laying a strong growth foundation for FY13.
‰ In FY12, MSIL faced various headwinds in the form of slowdown in passenger car demand (petrol), adverse foreign exchange movement and
production disruptions due to labor unrest.
‰ Situation in FY13 is expected to be a lot better for MSIL, with volumes
expected to increase at a strong note. Further recent weakening of the
yen against the USD is positive for MSIL.
‰ We revise our FY12 and FY13 estimates to factor in increase in volume
and EBITDA margin estimates. Our revised earnings estimate for the
company stands at Rs53.3 for FY12 (earlier Rs49.6) and Rs91.7 for FY13
(earlier Rs81.6).
‰ We value to the stock at 15x (earlier 14x) and arrive at a revised price
target of Rs1,368 (earlier Rs1,142). We upgrade the stock to ACCUMULATE (from REDUCE earlier).We have assigned a higher PE multiple in
view of positive developments on the forex movement front.
Volumes in FY13 to grow at a strong pace despite current weak
demand scenario
„ MSIL volumes in FY13 is expected to grow at a robust pace despite the current weak demand scenario. Company has reported strong volume performance in the first two months of the current calendar year.
„ Due to various issues that includes slowdown in car demand and production
loss due to labor issues, MSIL is expected to report 12% drop in volumes in
FY12.
„ Going ahead into FY13, we expect the company's volumes to grow by 19% despite a relatively weak industry demand outlook based on the following reasons
1.Higher availability of diesel engines 2.New launches and 3.Low FY12 base.
„ Given the huge price gap between diesel and petrol, the demand for cars have
clearly tilted in favor of diesel run cars. Earlier, due to limited capacity of diesel
engines, MSIL was unable to take advantage of the growing demand for diesel
run vehicles. However, in January the company increased the diesel engine
manufacturing capacity by 25% to 300,000 units pa. Also the company entered into an agreement with to procure additional 100,000 diesel engines per
annum.
„ Contrary to expectation, no additional excise duty on diesel vehicles in the recent budget was a major positive. Fuel cost economics is strongly in favor of
diesel powered vehicles and that will be a strong demand driver for diesel run
vehicles. For MSIL, we believe the volume growth in FY13 to be driven by diesel run cars.
„ Petrol run vehicle volumes on the other hand is expected to remain under pressure in the near to medium term. Expected lowering of interest rates and overall demand improvement could possibly help demand recovery in this segment.
Until then, we expect weak demand and high discounts for petrol run cars.
„ We expect MSIL's volumes in FY13 to receive boost from the new launches.
Recently the company launched the new D'zire which has received positive response. Further the company will be launching its MPV "Ertiga" which will further add to the volumes.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://www.kotaksecurities.com/pdf/dmb/MorningInsight30032012.pdf
MARUTI SUZUKI INDIA LIMITED (MSIL)
PRICE: RS.1306 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.1368 FY13E P/E: 14.3X
‰ After going through a difficult patch in FY12, situation for MSIL has improved significantly thereby laying a strong growth foundation for FY13.
‰ In FY12, MSIL faced various headwinds in the form of slowdown in passenger car demand (petrol), adverse foreign exchange movement and
production disruptions due to labor unrest.
‰ Situation in FY13 is expected to be a lot better for MSIL, with volumes
expected to increase at a strong note. Further recent weakening of the
yen against the USD is positive for MSIL.
‰ We revise our FY12 and FY13 estimates to factor in increase in volume
and EBITDA margin estimates. Our revised earnings estimate for the
company stands at Rs53.3 for FY12 (earlier Rs49.6) and Rs91.7 for FY13
(earlier Rs81.6).
‰ We value to the stock at 15x (earlier 14x) and arrive at a revised price
target of Rs1,368 (earlier Rs1,142). We upgrade the stock to ACCUMULATE (from REDUCE earlier).We have assigned a higher PE multiple in
view of positive developments on the forex movement front.
Volumes in FY13 to grow at a strong pace despite current weak
demand scenario
„ MSIL volumes in FY13 is expected to grow at a robust pace despite the current weak demand scenario. Company has reported strong volume performance in the first two months of the current calendar year.
„ Due to various issues that includes slowdown in car demand and production
loss due to labor issues, MSIL is expected to report 12% drop in volumes in
FY12.
„ Going ahead into FY13, we expect the company's volumes to grow by 19% despite a relatively weak industry demand outlook based on the following reasons
1.Higher availability of diesel engines 2.New launches and 3.Low FY12 base.
„ Given the huge price gap between diesel and petrol, the demand for cars have
clearly tilted in favor of diesel run cars. Earlier, due to limited capacity of diesel
engines, MSIL was unable to take advantage of the growing demand for diesel
run vehicles. However, in January the company increased the diesel engine
manufacturing capacity by 25% to 300,000 units pa. Also the company entered into an agreement with to procure additional 100,000 diesel engines per
annum.
„ Contrary to expectation, no additional excise duty on diesel vehicles in the recent budget was a major positive. Fuel cost economics is strongly in favor of
diesel powered vehicles and that will be a strong demand driver for diesel run
vehicles. For MSIL, we believe the volume growth in FY13 to be driven by diesel run cars.
„ Petrol run vehicle volumes on the other hand is expected to remain under pressure in the near to medium term. Expected lowering of interest rates and overall demand improvement could possibly help demand recovery in this segment.
Until then, we expect weak demand and high discounts for petrol run cars.
„ We expect MSIL's volumes in FY13 to receive boost from the new launches.
Recently the company launched the new D'zire which has received positive response. Further the company will be launching its MPV "Ertiga" which will further add to the volumes.
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