Maruti Suzuki India Ltd.|Q2FY15 Result Update | In line with our expectation, change our rating from HOLD to SELL with revised target price of Rs. 2,522 :: IndiaNivesh

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In line with our expectation, change our rating from HOLD to
SELL with revised target price of Rs. 2,522
Maruti Suzuki reported Q2FY15 PAT number in line with our expectation. Net revenue
increased by 17% YoY and 8% QoQ to Rs. 119.96bn (in line our estimate of Rs. 119.14
bn) due to volume growth (up 17% YoY) and 1% QoQ/YoY increase in realization.
Average realization increased by 1% QoQ /YoY to Rs. 3, 72,675 due to better product
mix (higher sales of UV’s). Volume increased by 17% YoY to 3,21,898 units on the back
of 19% YoY increase in domestic sales offset by 0.5% increase in export sales. Though
total sales jumped significantly in H1FY15, management is cautious for sustainability
of the growth in coming months and targeting 10% growth in FY15 whereas YTD
FY15, the company has achieved 15% growth. At CMP Rs 3242 the stock is trading at
PE multiple of 23x FY16E EPS. Due to stretched valuation and expected moderation in
volume growth, we change our rating from HOLD to SELL with revised target price of
Rs 2,522 (18x FY16E EPS).

EBITDA margin expanded 68 bps QoQ (down 26 bps YoY) to 12.4% due to favorable
currency movement and cost reduction initiative. RM cost (as % of sales) was down
76 bps QoQ (up 201 bps QoQ) while other expenses decreased by 113 bps YoY to
13.7%. Net profit increased by 29% YoY and 13% QoQ to Rs. 8.62 bn, slightly higher
than our estimates of Rs 8.14 bn due to higher other income (up 91% YoY). The
company has approved hike in foreign institutional investors investment limit up to
40% from 24% earlier. This is subject to shareholder approval in a general meeting
and subsequently request to RBI for notification. The board also approved the
guidelines for dividend payment; the company would endeavor to keep the dividend
payout ratio within the range of 18-30 percent.

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