Maruti Suzuki India Ltd. | Q3FY15 Result Update | In-line wih expectation numbers, maintain SELL rating, with target price of Rs. 3,218 (based on 18x FY17e EPS) :: IndiaNivesh

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Maruti Suzuki adjusted Q3FY15 PAT number was above our expectation. Net revenue increased by 20% YoY and 2% QoQ to Rs. 122.63 bn (slightly above our estimate of Rs. 121.14 bn) due to volume growth (up 12% YoY) and 2% QoQ/YoY increase in realization. Average realization increased by 2% QoQ /YoY to Rs. 3, 78,596 due to better product mix (higher sales of compact car and export sales). Domestic volume increased by 10% YoY while export volume jumped by 43% YoY. However on sequential basis volume increased marginally by 3% and export volume plunged 16%. Though total sales jumped significantly (14% YoY) in 9MFY15, management is cautious for sustainability of the growth in coming months due to roll back of excise duty benefit. Diesel vehicle demand is collapsing due to narrowing down of gap between diesel and petrol prices. Diesel volumes fell by 5% YoY for Maruti in Q3FY14 while petrol variant increased by 20% YoY. Pricing has also weakened, resulting in an increase in average discounts (Rs. 21000 per vehicle) for the company. Newly launched Ciaz in luxury segment has received good response. The company is targeting sales of ~4000 units per month. Automatic transmission cars are catching the imagination of masses. Maruti auto gear shift variants Celerio and Alto K10 are getting good response. We introduce FY17 estimates and value Maruti Suzuki at 18x FY17E EPS of Rs 179 to arrive at price target of Rs 3218 (from Rs 2840). We expect volume to grow at a CAGR of 13% from FY14-FY17e. At CMP Rs 3685 the stock is trading at PE multiple of 20.6x FY17E EPS. We maintain our SELL rating with target price of Rs. 3218. Rs.mn Q3FY15e Q2FY15 Q3FY14 Q‐o‐Q % Y‐o‐Y % INSPL Q3FY15e Variance(%) Revenue 122631 119963 102118 2 20 121142 1.23 EBIDTA 15926 15208 13214 5 21 15642 1.81 PAT 8022 8625 6702 -7 20 8364 -4.09 Adjusted PAT 8722 8625 6702 -7 20 8364 4.28 Source: IndiaNivesh Research EBITDA margin expanded by 30 bps QoQ to 12.7%, below our expectation of 12.9% due to higher other expenses. Benefit of favorable currency movement (the yen has depreciated by 13% YoY and 7% QoQ vs INR) was partially offset by negative inventory impact and higher discounts. RM cost (as % of sales) was down 117 bps QoQ (up 84 bps YoY) due to lower finished good purchase cost while other expenses increased by 88 bps YoY to 14.5% due to higher advertisement expenses and one off of Rs. 700 mn towards excise duty. Net profit increased by 20% YoY (down 7% QoQ) to Rs. 8.02 bn. However the company made a provision of Rs. 700 mn for Excise duty demand on sales tax subsidy. Adjusted PAT (excluding this exceptional item) comes at Rs. 8.7 bn, above our estimates of Rs. 8.3 bn)

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