Margin recovery to continue; Maintain Buy Maruti Suzuki :: Centrum

Margin recovery to continue; Maintain Buy
Maruti Suzuki’s (MSIL) 3QFY13 operating results were lower than our
expectations with EBITDA margins at 8% compared to our estimate of 8.8%.
Higher than expected realization growth (up 5.5% QoQ vs. est. 3%) led to
higher revenue growth. However, higher than expected other expenditure (at
11.7% of sales vs. est. 9.4%, largely on account of impact on vendor imports)
led to lower than expected operating performance. Despite 3QFY13 weaker
than our expectations, we continue to be positive on the stock and maintain
Buy rating with a target price of Rs.1,814. We expect EBITDA margins to
improve further. Our recent interaction with dealers revealed renewed
interest for the petrol models in recent months.
Operating performance lower than estimates: Revenues stood at Rs.112bn
compared to our estimate of Rs.110bn. While domestic realization registered a
growth of 3.8% QoQ, exports grew 20% QoQ, leading to blended realization
growth of 5.5% QoQ. Lower EBITDA margins due to the impact on vendor
imports (interaction with management indicated 200bps impact) led to lower
than expected operating performance. Reported PAT stood at Rs.5bn
compared to our estimate of 5.7bn.
Management interaction: Key highlights: 1) Increase in domestic realization
by 4% (in our assessment 1-1.5% due to lower discounts as indicated earlier
and 2.5%-3% on account of better product mix) 2.) Sales of diesel vehicles
stood at 107k units (40% of domestic volumes) in 3Q compared to 70k in 2Q
and 100k in 1Q. 3.) Export revenues stood at Rs.13.2bn (12% of revenues) and
export realization for the quarter moved up by 20% 4.) Discount for the
quarter, was lower by ~Rs.3,000 at Rs.12,000 compared to Rs.15,000 in 2Q. 5.)
Impact on account of vendor imports at 200bps is likely to reverse in 4Q due
to favorable currency movement in 3Q. 6.) Our dealer interaction indicates
strong demand pull for petrol models in recent months.

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