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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● Assuming coverage with an UNDERPERFORM. Our target price
of Rs1,108 is based on DCF translating to 12.5x FY13 earnings.
● Domestic passenger car volume growth is likely to slow to 5% this
year due to the adverse macro environment that has had a more
negative impact on entry-level car buyers. With market mix
shifting towards higher segment cars, Maruti could lose share.
Declining sales have resulted in an increase in dealer-level
inventory three weeks across manufactures and led to increased
discounts hurting margins further.
● While lower commodity prices should provide some relief, an
appreciating JPY could seriously dent margins. If the JPY stays at
its current levels, as Maruti has not hedged its exposure for
2HFY12, there could be a 200 bp drop on margins, which could
translate to a 30% impact on EPS.
● Given the fact that PAT margins have now halved to 5% and the
high Yen exposure means Maruti’s earnings have become very
volatile, which warrants a reduction in multiples.
Volume growth to slow down, margins to get hit further
On the back of adverse macro conditions, we expect car industry
volumes to slow to 5% in this fiscal year. Not only is the market
demand shifting towards the premium segment, but there is expected
to be higher competition in entry level segment in future. Margins
should decline further in 2HFY12. The increased competition in the
passenger car space, coupled with the slowdown in demand, has led
to companies resorting to heavy discounts to maintain their market
shares. Maruti’s earnings are also highly sensitive to changes in JPY
and its margins would suffer greatly on the account of high value of
JPY as it would be unhedgead for the second half of this fiscal year.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● Assuming coverage with an UNDERPERFORM. Our target price
of Rs1,108 is based on DCF translating to 12.5x FY13 earnings.
● Domestic passenger car volume growth is likely to slow to 5% this
year due to the adverse macro environment that has had a more
negative impact on entry-level car buyers. With market mix
shifting towards higher segment cars, Maruti could lose share.
Declining sales have resulted in an increase in dealer-level
inventory three weeks across manufactures and led to increased
discounts hurting margins further.
● While lower commodity prices should provide some relief, an
appreciating JPY could seriously dent margins. If the JPY stays at
its current levels, as Maruti has not hedged its exposure for
2HFY12, there could be a 200 bp drop on margins, which could
translate to a 30% impact on EPS.
● Given the fact that PAT margins have now halved to 5% and the
high Yen exposure means Maruti’s earnings have become very
volatile, which warrants a reduction in multiples.
Volume growth to slow down, margins to get hit further
On the back of adverse macro conditions, we expect car industry
volumes to slow to 5% in this fiscal year. Not only is the market
demand shifting towards the premium segment, but there is expected
to be higher competition in entry level segment in future. Margins
should decline further in 2HFY12. The increased competition in the
passenger car space, coupled with the slowdown in demand, has led
to companies resorting to heavy discounts to maintain their market
shares. Maruti’s earnings are also highly sensitive to changes in JPY
and its margins would suffer greatly on the account of high value of
JPY as it would be unhedgead for the second half of this fiscal year.
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