Maruti Suzuki India Decent quarter; maintain HOLD on fair valuations:: Emkay

n Q3 operating performance ~5% ahead of estimates
n Management outlook on volumes continues to remain very
bearish - expects 6-7% volumes growth in FY14
n Has begun hedging FY14 Yen exposure at favorable rates
n Retain HOLD on fair valuations - downside risk to volumes
offsetting upside risk to margins from a favorable currency
n We retain est and TP of Rs 1700, based on 14xFY15E EPS of
Rs 122 – stock trading at 15.6x/13.1x FY14/FY15 earnings
Decent show in Q3
MSIL reported a decent show in Q3FY13 beating our/consensus EBITDA estimates by
5%/3%. Net revenue at Rs 112 bn (+42% YoY, +35% QoQ) beat estimates by 2% on
better-than-expected realizations (+12.9% YoY, +3.1% QoQ). Export of the Ertiga CKD
kits continued to aid export realizations. EBITDA Margin came in at 8.0%, marginally
ahead, driven by better mix resulting in lower avg. discounts (Rs 12,100/car in Q3 vs Rs
14,750/car in Q2). Lower discounts were a function of resumption in production of the
Swift & Dzire post the labour strike ended. Net profit was in-line with expectations at Rs
5.01 bn (+144% YoY, +120% QoQ).
Volume outlook pessimistic; currency to be the saviour this time
MSIL management has been guiding for an FY14 volume growth of 6-7% - as against
this most street expectation including ours is in the range of 14-17% (Emkay est. at
17%). Our dealer interactions still do not point out to any pick up in demand for cars and
the new diesel policy could risk the diesel driven growth the industry has been seeing in
recent times. We see downside risk to our volume growth estimates.
Nonetheless, currency has moved very favorably for MSIL in the last one quarter
because of which we have already raised our margin estimates in the recent past,
despite lackluster volume growth and continued high discounting. 1% depreciation in the
Yen positively impacts our earnings estimates by ~2.5%. At present Yen-INR stands at
0.59 vs our base case assumption of 0.64. We see the downside risk to our volume
growth estimates more than offset by the currency benefits the company could see.
Maintain HOLD on fair valuations
We maintain our HOLD rating on the stock primarily because we believe that the stock
price adequately discounts the fundamentals and further upgrades are likely only if
currency continues to hover at current levels. We factor in volume of 1.4mn/1.6mn units
in FY14/FY15 implying a growth rate of 17%/16%. We have retained our margin
assumption at 9.5% currently and would review upgrading from forex benefits if the Yen
depreciates further or continue to hover at current level. We retain estimates and TP of
Rs 1700, based on 14xFY15E EPS of Rs 122 – stock trading at 15.6x/13.1x FY14/FY15
earnings

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