Tuesday, May 1, 2012

>MARUTI SUZUKI: Q4FY12 Result Update (recent launch of Ertiga)

Operating performance to improve; Maintain Buy
Maruti Suzuki India Limited’s (MSIL)'s 4QFY12 operating results were largely in-line with our estimates with EBITDA margins at 7.3% (60bps impact on account of variable pay to employees; employee cost at Rs.2.6bn vs. est. Rs.2.1bn) compared to our estimate of 7.8%. However, adjusted PAT stood higher at Rs.6.4bn compared to our estimate of Rs.5.65bn due to higher than expected other income (Rs.2.97bn vs. est. Rs.1.6bn). Driven by favorable product mix net realization moved up by Rs.12,000 QoQ. We continue to remain positive on the stock and expect strong growth in FY13E to be driven by the diesel portfolio and the recent launch of Ertiga. Also we expect operating performance to improve from current levels. We continue to maintain Buy rating on the stock with revised TP of Rs.1,577 (earlier Rs.1,307) as we roll forward our valuations to FY14E basis.

 Operating results in line; PAT beats expectation: MSIL registered 16%/50% YoY/QoQ
revenue growth in 4QFY12 to Rs115bn. The discounts per unit for 4Q stood at Rs.13,493
compared to Rs.12,500 in 3Q largely to push petrol models. Despite this due to higher
contribution from diesel models, the net realizations for the company moved up by Rs.12,000
QoQ. EBITDA margin contracted 268bps YoY, however expanded by 203bp QoQ. Employee
costs were 22% higher than expectations on account of the variable pay given to the
employees (impacted EBITDA margins by 60bp). However, adjusted PAT stood higher at
Rs.6.4bn compared to our estimate of Rs.5.65bn due to higher than expected other income
(Rs.2.97bn vs. est. Rs.1.6bn).

 Conference call highlights: 1.) the company indicated it would increase diesel-engine
capacity to 450K by 2HFY13E and to 600K by 2HFY14E from 300K in FY12. It plans to spend
Rs17bn on diesel-engine capacity expansion in Gurgaon. To add to its own capacity of
300,000 diesel engines, the company will source 100,000 diesel engines from Fiat India 2.) 

The recently launched “Ertiga” in the MPV space has been well received and the company
indicated an order book of 22,000 units for the model. Positively 85% of the bookings are for
the diesel variant. 3.) The company has covered 40% of its direct and indirect Yen exposure
and indicated that the rate at which the company has taken cover is more favourable than
current rates. 4.) For FY12 the management indicated that Petrol portfolio for the industry
registered a volume drop of 14% over FY11, while the diesel portfolio registered a strong
volume growth of 37% over FY13E. Management expects this trend to continue going
forward as well. 5.) The company has a total capacity of 1.6 mn vehicles and it plans to
increase this to 1.85 mn by the end of FY2013.

 Valuations and Recommendations: At the CMP of Rs1,397, the stock is currently trading
at 15.6x FY13E EPS of Rs.89.5 and 13x FY14E EPS of Rs.107. We reiterate BUY rating with a revised target price of Rs1,577 (core business valued at 14x FY14E earnings + Rs78 as value of investments in subsidiaries + Rs317 value of cash and cash equivalents).