Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Maruti Suzuki India (MSIL)
OW: Maruti launches its UV ride, Ertiga
Maruti launched its much awaited UV Ertiga today
Compared to competing models, Ertiga provides much
better fuel efficiency and pricing but is under-powered
May cannibalise the upper end of a few Maruti models, but
may not matter much as diesel capacity is constrained;
reiterate OW and INR1,405 target price
Maruti launched its much awaited UV Ertiga today. The launch of the Ertiga is critical for
Maruti from multiple dimensions. Most notably, it provides the company with an entry
into the UV market in India, which is nearly 14% of the total market. This has been a
growth market where Maruti has a negligible presence. Ertiga could provide a new market
category and another leg of growth for Maruti, which should be largely complementary to
existing sales. From a long-term perspective, the pricing and product are in the mid-range
segment (INR600,000-845,000) and do not push Maruti’s portfolio into the higher end market.
Ertiga vs key competitors. Ertiga is likely to compete with existing models from Toyota and
Mahindra, such as Innova and Xylo. Our analysis on page 2 suggests that Ertiga is scoring
high on cost of ownership, led by fuel efficiency and pricing. However the vehicle seems
slightly under-powered compared to most of the other competing models as seen in Table 1.
Cannibalisation of existing models. In our 27 March note on Maruti “Dealers indicate no
March slowdown; 4Q margin concerns remain”, we wrote about the risk of cannibalizing
the high end Swift and Dzire. Ertiga Diesel variants start from a pricing point of INR7.3m,
which is lower than the higher end of Swift and Dzire. In that regard, while like-to-like
model cannibalisation may not happen, there could be some customer shift from the
higher end Swift to Ertiga, which we do not see as a material threat to Maruti as the total
diesel capacity for Maruti is restricted to less than 400,000 in FY13.
Other key features
Seven-seater with foldable rear seats to increase boot space, flexible seating configurations of 2, 3-4,
5 and 7 seats.
Fully loaded variants to be equipped with steering-mounted audio controls, automatic climate control
systems and dash integrated music systems.
Safety features include dual SRS airbags, ABS and electronic brake distribution.
Valuation and risks
The stock is currently trading at 15x our FY13e earnings. Our valuation is based on DCF analysis,
supported by both PE and EV/EBITDA multiples. We use a WACC of 10.3% assuming a risk-free rate of
3.5% and a cost of equity of 11%. This method values the company at INR1,405 per share. At our target
price, the stock would trade at 16.7x FY13e EPS. Under our research model, for stocks without a
volatility indicator, the Neutral band is 5ppts above and below the hurdle rate for Indian stocks of 11%.
At the time we set our target price, it implied a potential return that was above the Neutral band;
therefore, we rate the stock Overweight. Potential return equals the percentage difference between the
current share price and the target price, including the forecast dividend yield when indicated.
Risks to our rating and estimates include a slower-than-expected pick-up in demand and yen appreciation,
as these factors could put further pressure on market share. Also, the potential success of new rival
launches remains a threat as competition from global OEMs increases.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Maruti Suzuki India (MSIL)
OW: Maruti launches its UV ride, Ertiga
Maruti launched its much awaited UV Ertiga today
Compared to competing models, Ertiga provides much
better fuel efficiency and pricing but is under-powered
May cannibalise the upper end of a few Maruti models, but
may not matter much as diesel capacity is constrained;
reiterate OW and INR1,405 target price
Maruti launched its much awaited UV Ertiga today. The launch of the Ertiga is critical for
Maruti from multiple dimensions. Most notably, it provides the company with an entry
into the UV market in India, which is nearly 14% of the total market. This has been a
growth market where Maruti has a negligible presence. Ertiga could provide a new market
category and another leg of growth for Maruti, which should be largely complementary to
existing sales. From a long-term perspective, the pricing and product are in the mid-range
segment (INR600,000-845,000) and do not push Maruti’s portfolio into the higher end market.
Ertiga vs key competitors. Ertiga is likely to compete with existing models from Toyota and
Mahindra, such as Innova and Xylo. Our analysis on page 2 suggests that Ertiga is scoring
high on cost of ownership, led by fuel efficiency and pricing. However the vehicle seems
slightly under-powered compared to most of the other competing models as seen in Table 1.
Cannibalisation of existing models. In our 27 March note on Maruti “Dealers indicate no
March slowdown; 4Q margin concerns remain”, we wrote about the risk of cannibalizing
the high end Swift and Dzire. Ertiga Diesel variants start from a pricing point of INR7.3m,
which is lower than the higher end of Swift and Dzire. In that regard, while like-to-like
model cannibalisation may not happen, there could be some customer shift from the
higher end Swift to Ertiga, which we do not see as a material threat to Maruti as the total
diesel capacity for Maruti is restricted to less than 400,000 in FY13.
Other key features
Seven-seater with foldable rear seats to increase boot space, flexible seating configurations of 2, 3-4,
5 and 7 seats.
Fully loaded variants to be equipped with steering-mounted audio controls, automatic climate control
systems and dash integrated music systems.
Safety features include dual SRS airbags, ABS and electronic brake distribution.
Valuation and risks
The stock is currently trading at 15x our FY13e earnings. Our valuation is based on DCF analysis,
supported by both PE and EV/EBITDA multiples. We use a WACC of 10.3% assuming a risk-free rate of
3.5% and a cost of equity of 11%. This method values the company at INR1,405 per share. At our target
price, the stock would trade at 16.7x FY13e EPS. Under our research model, for stocks without a
volatility indicator, the Neutral band is 5ppts above and below the hurdle rate for Indian stocks of 11%.
At the time we set our target price, it implied a potential return that was above the Neutral band;
therefore, we rate the stock Overweight. Potential return equals the percentage difference between the
current share price and the target price, including the forecast dividend yield when indicated.
Risks to our rating and estimates include a slower-than-expected pick-up in demand and yen appreciation,
as these factors could put further pressure on market share. Also, the potential success of new rival
launches remains a threat as competition from global OEMs increases.
Maruti launched their latest product "Ertiga" which can seat 7 people and priced less than 10 lac for the highest variants. Ertiga offers both the Petrol and Diesel variants for families.
ReplyDelete