Maruti, JPMorgan report

Maruti reported 4QFY13 standalone PAT of Rs.11.5B (+79% y/y), significantly
above our and consensus estimates. The variance was driven by a sharper-thanexpected
expansion in EBITDA margins (+250 bps q/q), given the weakening JPY
(+130bp benefit) as well as improved product mix, given higher sales of diesel
vehicles. We believe that while MSIL (Neutral) should benefit from a weaker JPY,
the demand environment remains uncertain and competition is intensifying,
particularly in the entry-level sedan segment.
 SPIL merger: Maruti merged SPIL with the standalone entity – PAT at SPIL
was Rs.920m for FY13 (vs. Rs1,150m for FY12). PAT was lower y/y due to
increased depreciation charges at the entity.
 Conference call takeaways – demand outlook: Management highlighted that
the demand environment is sedate, with growth over FY14E expected at ~5%.
Management is targeting to sustain market share at current levels of ~40%.
While diesel vehicles currently comprise 58% of industry sales, the mix is
expected to stabilize at 50%, given the recent fall in crude oil. Margins: Over
4Q, hedges were at JPY/$ 90 levels, which led to a benefit of 130bp on
currency. The OEM further benefited by 100bp from improved selling prices –
due to a higher mix of diesel. Thus, discounts came off to Rs.10,500 per vehicle
in the quarter compared to Rs.12,500 levels earlier. (However, discounts on
petrol cars remain elevated.) Over FY14, management has taken forward cover
for 30% of its requirements at JPY/$ 95 levels. Localization plans: Maruti is on
track to increase localization levels – import content came off from 26% to 20%
in the current year (due to a combination of a weaker JPY as well as increased
domestic content). Capex: The OEM will incur an expenditure of Rs.30B in
FY14E (Rs.27B in FY13). The expansion program related to higher diesel
capacity as well as commissioning of Manesar C is on schedule.
 Price Target: We are raising our earnings estimates by ~11% over FY14/15E
to factor in the favorable 4Q results. We are raising our Mar’14 PT to Rs.1,750
as we value the stock at 14.5x forward PE multiple. Key downside risks: A rise
in competitive intensity. Key upside risk: a sooner-than-expected pick-up in
industry growth

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