Maruti Suzuki
Margins to improve, but premium valuations; Sell
Key takeaways
Vehicle sales lower. Maruti Suzuki’s 3QFY14 sales volume was weak, as it
declined 4.4% yoy to 288,151 units. We expect it to grow 2.4% in FY14
against 3.3% in FY13, yoy. In early Jun’13, the company had to control
production at its diesel plant, which till last year was running at full utilisation.
We estimate residual growth of 7.5% for the rest of the year.
Decent results expected. We expect 1.8% yoy revenue decline (4.4%
volume decline and 2.5% growth in realisations) to `110.03bn. Our EBITDA
margin expectation is 12% (up 400bps yoy, 60bps lower qoq). Our EBITDA
growth estimate is 47.5% and our profit growth estimate is 38.6% yoy, to
`6.9bn. Profit growth in 3QFY14 is also inflated due to Suzuki Powertrain
merger in 4QFY13, which has not been accounted for in the base for 3Q.
New lines onstream. The new diesel engine plant at Gurgaon and the third
assembly facility at Manesar went on stream during Jul-Sep’13. With this,
capacity for vehicle assembly is now 1.5 million vehicles per annum.
Our take. In FY14, a favourable exchange rate and low base for its vehicle
sales would benefit the company. Most carmakers are looking to increase
prices 1-2% in Jan’14 to compensate for increasing input costs, higher
overheads and the impact of a depreciated rupee. Nevertheless, headwinds
from curtailed demand for passenger cars and from launches by competitors
would be the rough road in the next two quarters. We believe the price
factors in the short-term positives, while possible downgrades in sales
estimates have not yet been fully captured. Even the pick-up in exports is not
likely in the near term. Hence, we retain a Sell, with a target of `1,476. Our
target price is based upon 13.5x FY15e EPS. At CMP, the stock trades at
16.2x FY15e EPS. Risks. Above-expected volume growth, currency-related
benefits, lower commodity costs, possibility of stake increase by Suzuki.
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Margins to improve, but premium valuations; Sell
Key takeaways
Vehicle sales lower. Maruti Suzuki’s 3QFY14 sales volume was weak, as it
declined 4.4% yoy to 288,151 units. We expect it to grow 2.4% in FY14
against 3.3% in FY13, yoy. In early Jun’13, the company had to control
production at its diesel plant, which till last year was running at full utilisation.
We estimate residual growth of 7.5% for the rest of the year.
Decent results expected. We expect 1.8% yoy revenue decline (4.4%
volume decline and 2.5% growth in realisations) to `110.03bn. Our EBITDA
margin expectation is 12% (up 400bps yoy, 60bps lower qoq). Our EBITDA
growth estimate is 47.5% and our profit growth estimate is 38.6% yoy, to
`6.9bn. Profit growth in 3QFY14 is also inflated due to Suzuki Powertrain
merger in 4QFY13, which has not been accounted for in the base for 3Q.
New lines onstream. The new diesel engine plant at Gurgaon and the third
assembly facility at Manesar went on stream during Jul-Sep’13. With this,
capacity for vehicle assembly is now 1.5 million vehicles per annum.
Our take. In FY14, a favourable exchange rate and low base for its vehicle
sales would benefit the company. Most carmakers are looking to increase
prices 1-2% in Jan’14 to compensate for increasing input costs, higher
overheads and the impact of a depreciated rupee. Nevertheless, headwinds
from curtailed demand for passenger cars and from launches by competitors
would be the rough road in the next two quarters. We believe the price
factors in the short-term positives, while possible downgrades in sales
estimates have not yet been fully captured. Even the pick-up in exports is not
likely in the near term. Hence, we retain a Sell, with a target of `1,476. Our
target price is based upon 13.5x FY15e EPS. At CMP, the stock trades at
16.2x FY15e EPS. Risks. Above-expected volume growth, currency-related
benefits, lower commodity costs, possibility of stake increase by Suzuki.
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