>MARUTI SUZUKI: Impact of Manesar issue

Manesar issue to impact FY13 earnings; Maintain Buy


Maruti Suzuki’s (MSIL) 1QFY13 operating results were marginally below our expectations. Despite EBITDA margins standing lower at 7.3% (our est. 7.7%), absolute EBITDA was higher by 1% due to better than expected realization led revenue growth. Adjusted PAT stood at Rs.4.2bn compared to our estimate of Rs.5.1bn due to lower than expected other income. On a conservative side, we are factoring in production loss of 2months (i.e 50,000 units) from its Manesar plant for FY13E. We are lowering our EPS estimates for FY13E by 26% to factor in expected production loss at Manesar, lower operating performance in 2QFY13 due to lower than expected contribution from Diesel models and higher royalty outgo. However, if the production loss is higher than our estimate, we will re-visit our estimates and rating on the stock. We continue to remain positive on the stock and maintain our Buy rating with a revised target price of Rs.1,345.


Realization led revenue growth: Revenues stood at Rs.108bn compared to our estimate of Rs.102bn. The increase in NSR was higher than our expectations (up 11.6% QoQ and 20.4% YoY) resulting in better than expected revenue growth by 6%. Higher realization was expected due to higher contribution from the Diesel portfolio for its existing product line and from Ertiga (Ertiga accounted for 7% of domestic sales in 1QFY13). Also, as we have been highlighting, discounts stood at Rs.11,500 compared to Rs.13,500 in
4QFY12, lower by 15%.


Management interaction: Key highlights: 1) Diesel penetration to overall domestic sales stood at 38% compared to 27-28% in 4QFY12, thanks to higher contribution from Ertiga. For the overall passenger car industry, diesel penetration stood higher at 55% for 1QFY13. 2.) Discount for the quarter, as indicated stood lower by 15% QoQ to Rs.11,500 in 1QFY13 compared to Rs.13,500 for 4QFY12. 3.) Export revenues stood at Rs.11bn (10% of revenues) and export realization for the quarter moved up by 5.4% 4.) Domestic realization increased by 12.4% due to lower discount and more favorable product mix 5.) Overall market share in the domestic passenger car industry for MSIL in 1QFY13 stood at 44.6% compared to 44.2% in 4QFY12, helped by strong sales of Ertiga. Ertiga diesel continued to have a waiting period of
6 -7 months.


RISH TRADER