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Maruti Suzuki (MSIL)
Automobiles
Conference call takeaways. We attended the conference call hosted by the
management on the company’s 2Q performance. Even as we expect one more quarter
of pain, we believe volumes and margins are likely to trend higher from 2Q levels driven
by new model launches and cost-cutting actions (lower ad spends). We maintain our
ADD rating as we believe volumes are likely to revive from 1QFY13E and profitability is
likely to improve from current depressed levels.
Conference call takeaways
The management indicated that inventory levels have corrected to normal levels due to strike
and company plans to boost volume growth by increasing diesel engine capacity, increasing
Swift volumes and launching new models. The company currently has 20,000 units/month
diesel capacity and is likely to increase it to 25,000 units by January 2012. The company is also
about to finalize a diesel engine sourcing deal with Fiat India by January 2012 which will
increase diesel engine capacity further.
The company had two one-time impacts in this quarter – (1) marked to market loss of Rs260
mn due to commodity hedging and (2) Rs500 mn due to mark to market on royalty related to
1QFY12. Hence, EBITDA margins excluding this one-off would have been 7.3%.
The company indicated that impact of forex on indirect imports is likely to be felt in 3QFY12E,
which we believe could be ~100-150 bps negative impact on margins, direct imports have been
hedged for 2HFY12E at a little favorable rate than 2QFY12 after today’s fall in Yen. Royalty will
remain unhedged but expense will go down in 3QFY12E.
We believe this quarter was the trough of margins and we expect EBITDA margins to move up
on account of improvement in product mix, lower advertising costs, lower average discounts
(higher sales of Swift and Dzire) and localization benefits which will more than offset the
negative impact of appreciation of Yen on indirect imports in 2HFY12E, in our view.
We maintain our ADD rating on the stock and keep our target price unchanged
We maintain our ADD rating on the stock and keep our target price unchanged at Rs1,240. Our
target price is based on 13X multiple of FY2013E consolidated EPS. We have revised our
consolidated earnings downwards by 8% in FY2012E and keep our FY2013 estimates unchanged.
Our FY2012E earnings revision factors in 60 bps downward revision in our EBITDA margin
estimates on account of higher royalty expense, higher-than-estimated discounts and higher
advertising expense
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Maruti Suzuki (MSIL)
Automobiles
Conference call takeaways. We attended the conference call hosted by the
management on the company’s 2Q performance. Even as we expect one more quarter
of pain, we believe volumes and margins are likely to trend higher from 2Q levels driven
by new model launches and cost-cutting actions (lower ad spends). We maintain our
ADD rating as we believe volumes are likely to revive from 1QFY13E and profitability is
likely to improve from current depressed levels.
Conference call takeaways
The management indicated that inventory levels have corrected to normal levels due to strike
and company plans to boost volume growth by increasing diesel engine capacity, increasing
Swift volumes and launching new models. The company currently has 20,000 units/month
diesel capacity and is likely to increase it to 25,000 units by January 2012. The company is also
about to finalize a diesel engine sourcing deal with Fiat India by January 2012 which will
increase diesel engine capacity further.
The company had two one-time impacts in this quarter – (1) marked to market loss of Rs260
mn due to commodity hedging and (2) Rs500 mn due to mark to market on royalty related to
1QFY12. Hence, EBITDA margins excluding this one-off would have been 7.3%.
The company indicated that impact of forex on indirect imports is likely to be felt in 3QFY12E,
which we believe could be ~100-150 bps negative impact on margins, direct imports have been
hedged for 2HFY12E at a little favorable rate than 2QFY12 after today’s fall in Yen. Royalty will
remain unhedged but expense will go down in 3QFY12E.
We believe this quarter was the trough of margins and we expect EBITDA margins to move up
on account of improvement in product mix, lower advertising costs, lower average discounts
(higher sales of Swift and Dzire) and localization benefits which will more than offset the
negative impact of appreciation of Yen on indirect imports in 2HFY12E, in our view.
We maintain our ADD rating on the stock and keep our target price unchanged
We maintain our ADD rating on the stock and keep our target price unchanged at Rs1,240. Our
target price is based on 13X multiple of FY2013E consolidated EPS. We have revised our
consolidated earnings downwards by 8% in FY2012E and keep our FY2013 estimates unchanged.
Our FY2012E earnings revision factors in 60 bps downward revision in our EBITDA margin
estimates on account of higher royalty expense, higher-than-estimated discounts and higher
advertising expense
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