Maruti Suzuki - “The bright spot!”:LKP

Q4 FY13, a big positive surprise

Q4 FY13 was the first quarter when the company came out with the financials including the impact of the merger with Suzuki Power Train India Ltd (SPIL). Including this impact the topline grew by 13.7% yoy to Rs130 bn, while EBITDA grew by 113% yoy to Rs19.9bn. The synergies of this merger were starkly visible in the margin performance as EBITDA margins expanded robustly to 15.3% in Q4 which was a growth of 720 bps yoy. On standalone basis, the revenues grew by 7.2% yoy, while margins expanded to 10.6%, which has touched double digits first time since last eight quarters. Standalone net profits went up by 79% yoy and 128% qoq to Rs11.43 bn, while the consolidated net profits went up by 94% yoy and 147% qoq.   Volumes jumped by 14% qoq while declined by 4% yoy to 3.43 lakh units during the quarter. Net realizations grew by 19% yoy and 4.5% qoq on improved product mix, and slight lowering of discounts. Standalone RM cost to sales dipped to 77.9% of sales v/s 80.2% qoq and 81.3% yoy. At the same time, consol RM to sales came down drastically to 66.9%, the major contributor of which was yen depreciation. Also, higher emphasis on cost reduction initiatives at its Gurgaon plant and focus on cutting down of import content led to such an above par improvement in margins. Employee costs to sales moved up in the consol numbers on SPIL merger (3% of sales), while standalone employee cost to sales remained stable at 2%. Other expenses also moved down to 11.3% from 11.8% qoq as royalty payments came down in line with Yen, however, consol other expenses to sales moved up to 16.8%. Consol depreciation moved to 6.2% of sales as expected but will move down going forward with the merger impact becoming stronger.

Outlook and Valuation

With almost a year of underperformance, MSIL has been showing remarkable improvement since Q3, while Q4 was a highlight. Volumes have increased on domestic front and exports are showing traction from Africa, Latin America and ASEAN countries. With the success of Ertiga and new launches coming up, such as an SUV, the company is trying to establish itself in the SUV segment as well. On margin front as well, we see a better product mix, depreciating Yen, reducing discounts, SPIL merger and increase in indigenization resulting strong margin performance. Since the Q4 results were way above our expectations, we are raising our FY 14E estimates by 17% and introducing FY 15 estimates and rolling over our target to FY15E numbers. We raise our target from Rs1,728 to Rs2,031, despite recent rally in the stock. Hence, we upgrade out stock from Neutral to BUY with an upside of 21%.

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