>MARUTI SUZUKI INDIA (CITI)

Hold: 1QFY10 Results – Overall, a Solid Quarter

■ Recurring PAT was above expectations — at Rs 5.84 bn, up 25% y/y and 38% above our expectations. This quarter had everything – volume growth, market share gains, mix improvement and margin expansion. EBITDA margins at 10.4% (+60 bps y/y, 390 bps q/q), were 140 bps above our estimates.

■ Exports/mix shift drove realizations — 1) Realizations rose 4% sequentially, due to a richer product mix and a 17% q/q increase in exports. We got our export realizations wrong – they are c12% higher than our expectations, a quick sensitivity reveals that FY10 estimates could be increased by cRs7/share if export realizations remain at current levels (ceteris paribus).

■ Costs/FX move in the same direction — Material costs as a % of sales declined 270 bps q/q; MSIL also benefited from the rupee strengthening against the yen (~60bps benefit on margins).

■ Cash flows/capex in-line with expectations — inventories are in check – 1mth of sales. Working capital remains tight. FY10 capex is targeted at Rs21bn; the company's cash surplus is ~Rs47bn. Escalating spends on R&D could further cut the effective tax rate (~27% in 1Q).

■ Overall, mgmt remains cautiously optimistic — Mgmt noted that a) financing has improved (66% today, vs ~60% commencement of fiscal), b) consumer confidence is improving (reflected in richer mix), c) Discounts/car have trended down to Rs9k from Rs12k/car. Risks are macro in nature – muted monsoons, higher rates. We maintain Hold (2L), given expensive valuations.

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