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Maruti Suzuki India Ltd Neutral
MRTI.BO, MSIL IN
1Q FY12 review: PAT growth driven by higher other
income; EBITDA margins remain under pressure
1Q FY12 PAT of Rs.5.5B (+18% yoy) was above street estimates.
However, the growth in PAT was driven by higher other income (+80
yoy%) as the management booked capital gains on its treasury portfolio,
and the operating EBITDA margin disappointed (-60bp qoq). We believe
that as industry growth rates moderate, competitive intensity is rising in
the sector. We reiterate our Neutral rating on the stock.
Conference call takeaways: Volume outlook: Management highlighted
that interest rate increases will have an impact on demand in the near
term. The OEM is launching the new Swift in August and has healthy
orders of 30,000 units for this model. It is raising the capacity of its
diesel engines to 290,000 units in 2H FY12. Margin outlook: While
management had taken forward covers for the JPY up to 2Q, it has open
positions from 2H onwards. However, it has taken forward covers on the
euro (for its exports) at a favorable rate, which should partially offset the
adverse impact of the above. Further, management is localizing the
production of auto parts, which will result in imports declining by c.2-
3% each year. Commodity cost pressures are likely to moderate from
hereon. As the OEM faces a challenging macro environment, discount
levels are likely to remain elevated. While the royalty expense ratio
declined to 4.8% of sales on lower export sales, management expects
this trend to be sustained at 5-5.5% for FY12 as guided earlier. Capex:
Management expects to incur spending of Rs.40B in FY12, Rs.25B of
which will be for raising capacity and Rs.15B for R&D.
Price target and risks: We lower FY12-13E EPS by c.5% as we reduce
our volume and margin estimates. As a result, we set a new Sep-12 PT of
Rs1,270 based on a one-year forward P/E of 13.5x, down from 14x
before to factor in moderating industry growth rates. Key downside risks:
weaker-than-expected industry growth rates and rising JPY. Key upside
risk: lower-than-expected build-up in competitive intensity.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Maruti Suzuki India Ltd Neutral
MRTI.BO, MSIL IN
1Q FY12 review: PAT growth driven by higher other
income; EBITDA margins remain under pressure
1Q FY12 PAT of Rs.5.5B (+18% yoy) was above street estimates.
However, the growth in PAT was driven by higher other income (+80
yoy%) as the management booked capital gains on its treasury portfolio,
and the operating EBITDA margin disappointed (-60bp qoq). We believe
that as industry growth rates moderate, competitive intensity is rising in
the sector. We reiterate our Neutral rating on the stock.
Conference call takeaways: Volume outlook: Management highlighted
that interest rate increases will have an impact on demand in the near
term. The OEM is launching the new Swift in August and has healthy
orders of 30,000 units for this model. It is raising the capacity of its
diesel engines to 290,000 units in 2H FY12. Margin outlook: While
management had taken forward covers for the JPY up to 2Q, it has open
positions from 2H onwards. However, it has taken forward covers on the
euro (for its exports) at a favorable rate, which should partially offset the
adverse impact of the above. Further, management is localizing the
production of auto parts, which will result in imports declining by c.2-
3% each year. Commodity cost pressures are likely to moderate from
hereon. As the OEM faces a challenging macro environment, discount
levels are likely to remain elevated. While the royalty expense ratio
declined to 4.8% of sales on lower export sales, management expects
this trend to be sustained at 5-5.5% for FY12 as guided earlier. Capex:
Management expects to incur spending of Rs.40B in FY12, Rs.25B of
which will be for raising capacity and Rs.15B for R&D.
Price target and risks: We lower FY12-13E EPS by c.5% as we reduce
our volume and margin estimates. As a result, we set a new Sep-12 PT of
Rs1,270 based on a one-year forward P/E of 13.5x, down from 14x
before to factor in moderating industry growth rates. Key downside risks:
weaker-than-expected industry growth rates and rising JPY. Key upside
risk: lower-than-expected build-up in competitive intensity.
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