Maruti Suzuki (MSIL IN, INR 1,102, Buy)
We met the Maruti Suzuki India (MSIL) management for latest update on business. The company expects reversal of fuel price hike to revive demand and maintains FY13 sales growth guidance of 10% despite challenging demand environment. Also, it expects better product mix to negate the impact of high discounts on petrol cars. MSIL does not expect any steep hike in excise duty on diesel vehicles. Margin pressure springs from weak INR, where it has unhedged exposure against USD. Maintain ‘BUY’.
��
Banking on reversal of fuel price hike to boost demand
Petrol vehicle demand has been affected post steep hike in petrol prices in May. Fall in crude prices and subsequent reversal in the fuel price hike could revive petrol car demand. MSIL does not expect any steep hike in excise duty on diesel vehicles. It also enjoys low base advantage since production was disrupted last year due to strike.
Weak INR: the primary risk
Average discount per car in Q1FY13 so far at INR13,000 is better than INR13,300 in Q4FY12 due to higher contribution of diesel cars. MSIL is also looking to save 2.2% of sales through cost rationalisation efforts. Weak INR has negated the benefit of fall in commodity prices. The company has hedged its JPY/USD exposure for H1FY13. However, USD/INR is completely unhedged and thus, poses downside risk. If USD/INR persists at 57, it may lead to 12% correction to our EPS estimate of INR92 in FY13.
Outlook and valuations: Favourable; maintain ‘BUY’
The recent 30% correction in the stock price captures the weak operating environment. However, fall in crude prices and the expected lowering of interest rates by RBI still makes MSIL the preferred early interest rate cycle play. We maintain 'BUY/Sector Outperformer’' with TP of INR1,530, implying 16x FY13E core EPS of INR84 plus, discounted NPV of cash/share of INR179. Weak INR is the key downside risk since 1% depreciation in the currency could lower EPS 1.7%.
Regards,
No comments:
Post a Comment