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Results beat our and consensus expectations as margins were resilient due to strong product
mix. The RBI's aggressive repo rate hike today surprised us and may pressure car demand for
several months. We marginally raise our EPS and TP as we wait for demand concerns to ease.
Hold.
Better product mix leads to big surprise in 1Q results
1Q results surprised by a wide margin (35% vs our forecasts and 25% vs Bloomberg consensus),
driven by sharp savings in manufacturing and other expenses (down 21% qoq), depreciation
(down 18% qoq) and higher other income (up 80% yoy and 50% qoq). Management highlighted
that a better product mix reduce lower qoq discounts and royalty payments, surprising
consensus. The sharp dip in exports also helped reduce transportation costs. Management noted
other income was boosted by capital gains recorded in 1Q, which it has said is unsustainable.
EPS rose 3.5% yoy to Rs19 for the quarter on flat sales volume.
We raise our EPS forecasts 3-5% due to impressive 1Q results
The macro headwinds to car demand remain high in the form of rising interest rates and fuel price
trends. This could pose a risk to our volume growth assumption of 4.2% for the rest of FY12,
considering the large base effect. However, considering difficulty in predicting sustainability of
product mix benefits seen in 1Q, we raise our FY12 EPS only 5.4% and our FY13F EPS by 2.8%.
Our upgrades are largely driven by lower depreciation. Despite our upgrade, we are still 10-12%
below consensus because we take into account demand and yen concerns.
Impressive results limit downside; awaiting macro triggers
We find Maruti’s impressive cost control and product mix benefit commendable in the current
challenging environment. Management’s plan to launch the new Swift, its most sought-after
product, may distort short-term sales but should start contributing from August onwards. The
Reserve Bank of India’s (RBI) policy announcement of a sharp 50bp hike in repo rates could
pressure car demand, which is already suffering low growth of 3% yoy. We believe 2Q will be
most challenging for the company as demand sentiments weaken, compact car competition
peaks and yen appreciation against the US dollar raises the import bill. We maintain Hold and
marginally revise our target price to Rs1,106 (from Rs1,083) to reflect our EPS changes.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Results beat our and consensus expectations as margins were resilient due to strong product
mix. The RBI's aggressive repo rate hike today surprised us and may pressure car demand for
several months. We marginally raise our EPS and TP as we wait for demand concerns to ease.
Hold.
Better product mix leads to big surprise in 1Q results
1Q results surprised by a wide margin (35% vs our forecasts and 25% vs Bloomberg consensus),
driven by sharp savings in manufacturing and other expenses (down 21% qoq), depreciation
(down 18% qoq) and higher other income (up 80% yoy and 50% qoq). Management highlighted
that a better product mix reduce lower qoq discounts and royalty payments, surprising
consensus. The sharp dip in exports also helped reduce transportation costs. Management noted
other income was boosted by capital gains recorded in 1Q, which it has said is unsustainable.
EPS rose 3.5% yoy to Rs19 for the quarter on flat sales volume.
We raise our EPS forecasts 3-5% due to impressive 1Q results
The macro headwinds to car demand remain high in the form of rising interest rates and fuel price
trends. This could pose a risk to our volume growth assumption of 4.2% for the rest of FY12,
considering the large base effect. However, considering difficulty in predicting sustainability of
product mix benefits seen in 1Q, we raise our FY12 EPS only 5.4% and our FY13F EPS by 2.8%.
Our upgrades are largely driven by lower depreciation. Despite our upgrade, we are still 10-12%
below consensus because we take into account demand and yen concerns.
Impressive results limit downside; awaiting macro triggers
We find Maruti’s impressive cost control and product mix benefit commendable in the current
challenging environment. Management’s plan to launch the new Swift, its most sought-after
product, may distort short-term sales but should start contributing from August onwards. The
Reserve Bank of India’s (RBI) policy announcement of a sharp 50bp hike in repo rates could
pressure car demand, which is already suffering low growth of 3% yoy. We believe 2Q will be
most challenging for the company as demand sentiments weaken, compact car competition
peaks and yen appreciation against the US dollar raises the import bill. We maintain Hold and
marginally revise our target price to Rs1,106 (from Rs1,083) to reflect our EPS changes.
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