Friday, October 31, 2014


Outlook positive, maintain Buy with a revised price target of Rs3,600

Maruti Suzuki India (Maruti) posted an impressive volume growth of 16.8% in Q2FY2015. A favourable currency impact aided in a 68BPS sequential expansion in OPM to 12.4%. A fall in the tax rate to 20.2% as against 24% in the previous quarter resulted in a 28.7% Y-o-Y increase in the net profit to Rs863 crore as against our estimate of Rs784 crore.

Maruti’s management has maintained its guidance of a 10% volume growth for FY2015 and reiterated that the discount push was necessary to sustain the current trend which remains unstable. The urban volume growing at 10% is the key positive and a sign of better times ahead for the industry. Maruti meanwhile continues to consolidate its leadership position with its market share touching a four-year high of 45.2%. A spate of new launches coupled with refreshes to the current line-up is targeted at further consolidating the pole position.

We have tweaked our volume estimates for FY2016 and FY2017 given the deferment of the launch of XA-Alfa in FY2017 instead of FY2016 earlier. We have also reduced our tax rate estimate given the lower rates for the quarter and further benefit due to the expenditure on research and development. Consequently, earnings estimates for FY2015-16 are marginally higher, while FY2017 earnings estimates have been raised by 4.6% given the dual benefit of higher volume and lower tax rate. We continue to remain positive on the stock and reiterate a Buy recommendation with a revised price target of Rs3,600 (earlier Rs3,500) discounting FY2017E EBITDA 10x.