Maruti Suzuki Ltd. 29 July 2013 1 | Page Sell CMP: Rs.1375 Target Price: Rs.1525 Upside: 10.8% Key Data Size Segment Large Cap Market Cap (Rs, Cr.) 41,548 Market Cap (US$ mn) 7,030 O/S Shares, Cr. 13.2 Free Float Factor 0.44 Face Value, Rs 5 2 Wk Avg. Vol., NSE 585 52 Wk High/Low 1639/1051 Rs/US$ 59.1 Bloomberg MSIL IN Reuters MRTI.BO NSE MARUTI BSE 532500 Source: Shah Investor’s Research Shareholding Pattern Q1 FY14 Q1 FY13 Promoter 56.2% 54.2% FII 22.4% 20.3% DII 13.1% 16.4% Public 8.7% 9.1% Source: BSE, Shah Investor’s Research Institutional Holding Institutions Q1 FY14 Q1 FY13 LIC 6.5% 8.5% HSBC Global 1.8% 4.6% ICICI Pru 1.6% 1.7% Source: BSE, Shah Investor’s Research Source: Ace Equity, Shah Investor’s Research Harsh Mehta (Research Analyst) [email protected]Stock fairly valued but volume growth remains a concern; Recommend Buy Maruti Suzuki Ltd. (MSIL) Q1 FY14 result was above our estimates. Total revenue for MSIL was at Rs.10,237 Cr. (est. Rs. 9,744 Cr.). Realization for MSIL was higher 5.5% YoY and 1.2% QoQ at Rs.3,75,144 due to weak product mix and lower export volumes. EBITDA for MSIL is at Rs.1,166 Cr. (est. Rs.1,004 Cr.) while EBITDA margin is at 11.4% (est. 10.3%). Effective tax rate is around 25.3%. PAT for MSIL is at Rs.632 Cr. (est. Rs.580 Cr.). Key Business Highlights Sales volume: MSIL quarterly sales volume was down 10% YoY and 22.5% QoQ to 2,66,434 units. Passenger car sales volumes for entire industry are down by 11.4% YoY and 15.7% QoQ. Contribution of mini segment is up 379 bps YoY but down 320 bps QoQ to 39.8% of domestic sales. Export sales volume is also down 35.4% YoY and 39.5% QoQ to 21,088 units. Diesel engine car sales for MSIL in Q1 FY14 were around 34% of overall sales vs. Industry demand is around 53-54%. Ertiga, new launch in Utility vehicle segment, has seen lowest ever quarterly volume to 14,242 units since its inception. MSIL newly launched Alto 800 which was aimed to boost sluggish sales in petrol variant has not able to generate volume growth. We estimate a volume growth of around 3.3% in FY14 (earlier 11.3%) to 1,210,045 (earlier 1,304,037) and 12.1% growth in FY15 to 1,357,041 (earlier 1,359,440) units. We estimate short term problems still persist in Indian domestic passenger car industry and sales volume would pick up from Q3 FY14 onwards. Realization: Net realization for MSIL is up 5.4% YoY and 1.2% QoQ to Rs.375,144. Decrease in net realization QoQ is mainly due weak product mix, lower nos. of diesel engine vehicles and lower exports (down 35.4% YoY and 39.8% QoQ). Discounts in Q1 FY14 is higher by Rs.1820 YoY and Rs.2846 QoQ to Rs.13,446/unit. MSIL has hike price in domestic segment by around Rs.20,000 in Jan 2013. Lower contribution of diesel engine vehicles and higher discounts are primary reason for decline in net realization. EBITDA margin: EBITDA for MSIL is up 48.3% YoY but down 45.5% QoQ to Rs.1,166 Cr. EBITDA margin for MSIL is up 410 bps YoY but down 469 bps QoQ to 11.4%. Raw material cost as % of net sales is down 599 bps YoY but up 714 bps QoQ to 66.6% due to favorable currency movements (Yen depreciating) and merger of SPIL. Direct and indirect imports currently stand at 19% of net sales. MSIL management expects commodity prices to remain stable in FY14. Employee cost as % of net sales is up 69 bps YoY and 75 QoQ to 3.0%. Other expense as % of net sales is up by 116 bps YoY but down 264 bps QoQ. Royalty payments for Q1 FY14 were around Rs.610 Cr.; 6.1% of net sales. Higher discounts indicate weak demand sentiments and introduction of discounts on diesel engine portfolio. Other income is higher by 81.9% YoY to Rs.204 Cr. while tax rate for Q1 FY15 is around 25.3%. Conference Call Highlights Passenger Car industry de-grew by 11.4% in Q1 FY14. Management expects Industry to grow in single mid digit while it expects MSIL to grow between 0-5%. Rural sales growing by double digit and comprises of 29-30% of total car sales for MSIL Petrol engine car sales have continued it declining trend while diesel engine car sales have started declining in Q1 FY14. As per management, normal monsoon will have positive effect on passenger car sales. Direct and Indirect imports stands at 19% of net sales in FY14. Despite weak Yen, management has re-iterated that localization program to continue and its import target (direct and Indirect) is 8-9% in next 3 years. Management target for imports stands at 16.5% of net sales in FY14 MSIL have started offering discounts on diesel engine cars MSIL is currently focusing Latin American countries, Africa and ASEAN region to boost its exports. Effective JPY/USD exposure for direct imports and royalty hedged for remainder FY14 at 98-100. While JPY/USD exposure for vendor imports and entire INR/USD exposure remains unhedged. Average JPY/INR for Q1 FY14 was at ~0.60. Capacity addition of 0.25m units assembly line at Manesar and 0.15m units of diesel engine at Gurgaon are on track. 2 nd phase of diesel engine capacity expansion has been deferred. Tax rate for MSIL in FY14 is around 25% 1000 1100 1200 1300 1400 1500 1600 1700 1800 Nifty (Rebased) MSIL Q Q 1 1 F F Y Y 1 1 4 4 R R e e s s u u l l t t U U p p d d a a t t e e
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Maruti Suzuki Ltd. 29 July 2013
1 | P a g e
Sell CMP: Rs.1375
Target Price: Rs.1525
Upside: 10.8%
Key Data
Size Segment Large Cap Market Cap (Rs, Cr.) 41,548 Market Cap (US$ mn) 7,030 O/S Shares, Cr. 13.2 Free Float Factor 0.44 Face Value, Rs 5 2 Wk Avg. Vol., NSE 585 52 Wk High/Low 1639/1051 Rs/US$ 59.1 Bloomberg MSIL IN Reuters MRTI.BO NSE MARUTI BSE 532500 Source: Shah Investor’s Research
Shareholding Pattern
Q1 FY14 Q1 FY13
Promoter 56.2% 54.2% FII 22.4% 20.3% DII 13.1% 16.4% Public 8.7% 9.1% Source: BSE, Shah Investor’s Research
Stock fairly valued but volume growth remains a concern; Recommend Buy Maruti Suzuki Ltd. (MSIL) Q1 FY14 result was above our estimates. Total revenue for MSIL was at Rs.10,237 Cr. (est. Rs. 9,744 Cr.). Realization for MSIL was higher 5.5% YoY and 1.2% QoQ at Rs.3,75,144 due to weak product mix and lower export volumes. EBITDA for MSIL is at Rs.1,166 Cr. (est. Rs.1,004 Cr.) while EBITDA margin is at 11.4% (est. 10.3%). Effective tax rate is around 25.3%. PAT for MSIL is at Rs.632 Cr. (est. Rs.580 Cr.). Key Business Highlights
Sales volume: MSIL quarterly sales volume was down 10% YoY and 22.5% QoQ to
2,66,434 units. Passenger car sales volumes for entire industry are down by 11.4% YoY and 15.7% QoQ. Contribution of mini segment is up 379 bps YoY but down 320 bps QoQ to 39.8% of domestic sales. Export sales volume is also down 35.4% YoY and 39.5% QoQ to 21,088 units. Diesel engine car sales for MSIL in Q1 FY14 were around 34% of overall sales vs. Industry demand is around 53-54%. Ertiga, new launch in Utility vehicle segment, has seen lowest ever quarterly volume to 14,242 units since its inception. MSIL newly launched Alto 800 which was aimed to boost sluggish sales in petrol variant has not able to generate volume growth. We estimate a volume growth of around 3.3% in FY14 (earlier 11.3%) to 1,210,045 (earlier 1,304,037) and 12.1% growth in FY15 to 1,357,041 (earlier 1,359,440) units. We estimate short term problems still persist in Indian domestic passenger car industry and sales volume would pick up from Q3 FY14 onwards.
Realization: Net realization for MSIL is up 5.4% YoY and 1.2% QoQ to Rs.375,144.
Decrease in net realization QoQ is mainly due weak product mix, lower nos. of diesel engine vehicles and lower exports (down 35.4% YoY and 39.8% QoQ). Discounts in Q1 FY14 is higher by Rs.1820 YoY and Rs.2846 QoQ to Rs.13,446/unit. MSIL has hike price in domestic segment by around Rs.20,000 in Jan 2013. Lower contribution of diesel engine vehicles and higher discounts are primary reason for decline in net realization.
EBITDA margin: EBITDA for MSIL is up 48.3% YoY but down 45.5% QoQ to
Rs.1,166 Cr. EBITDA margin for MSIL is up 410 bps YoY but down 469 bps QoQ to 11.4%. Raw material cost as % of net sales is down 599 bps YoY but up 714 bps QoQ to 66.6% due to favorable currency movements (Yen depreciating) and merger of SPIL. Direct and indirect imports currently stand at 19% of net sales. MSIL management expects commodity prices to remain stable in FY14. Employee cost as % of net sales is up 69 bps YoY and 75 QoQ to 3.0%. Other expense as % of net sales is up by 116 bps YoY but down 264 bps QoQ. Royalty payments for Q1 FY14 were around Rs.610 Cr.; 6.1% of net sales. Higher discounts indicate weak demand sentiments and introduction of discounts on diesel engine portfolio. Other income is higher by 81.9% YoY to Rs.204 Cr. while tax rate for Q1 FY15 is around 25.3%.
Conference Call Highlights
Passenger Car industry de-grew by 11.4% in Q1 FY14. Management expects Industry to grow in single mid digit while it expects MSIL to grow between 0-5%.
Rural sales growing by double digit and comprises of 29-30% of total car sales for MSIL
Petrol engine car sales have continued it declining trend while diesel engine car sales have started declining in Q1 FY14.
As per management, normal monsoon will have positive effect on passenger car sales.
Direct and Indirect imports stands at 19% of net sales in FY14. Despite weak Yen, management has re-iterated that localization program to continue and its import target (direct and Indirect) is 8-9% in next 3 years. Management target for imports stands at 16.5% of net sales in FY14
MSIL have started offering discounts on diesel engine cars MSIL is currently focusing Latin American countries, Africa and ASEAN region to
boost its exports. Effective JPY/USD exposure for direct imports and royalty hedged for remainder
FY14 at 98-100. While JPY/USD exposure for vendor imports and entire INR/USD exposure remains unhedged. Average JPY/INR for Q1 FY14 was at ~0.60.
Capacity addition of 0.25m units assembly line at Manesar and 0.15m units of diesel engine at Gurgaon are on track. 2
nd phase of diesel engine capacity
expansion has been deferred. Tax rate for MSIL in FY14 is around 25%
Source: Company, Shah Investor’s Research Source: Company, Shah Investor’s Research
MSIL have delivered a stable Q1 FY14 result largely due to favorable currency movements (weak Yen). MSIL have strong correlation with Yen and have rallied accordingly in Q4 FY13 and start of Q1 FY14. We estimate a volume growth of 3.3% (earlier 11.3%) in FY14 and 12.1% (earlier 4.2%) in FY15. We re-iterate that short term problems still persists in Indian domestic car industry and sales volume growth is the primary reason for driving the stock price. However weak Yen do have a positive EBITDA impact on bottom line but it is temporary impact. JPY/USD hovering near 100 levels, we estimate it will bottom out and will reach a level of 90-92 again. Diesel deregulation has narrowed down gap between petrol and diesel prices and would result in uptick in petrol engine car sales. We believe stock is fairly valued at current price while key downside to our estimate is strengthening of Yen and muted sales volume growth. We have valued the stock on weighted average of stock price arrived based on two different valuation parameters. On a PE basis we arrived at a value of Rs.1,459/share @ 40% weight. On EV/EBITDA we arrived at a value of Rs.1,568/share @ 60% weight; Based on the weighted average, target price for MSIL stock comes at Rs.1,525/share (earlier 1,565/share). We have marginally revised downwards our target price to Rs.1,525 (earlier Rs.1,565) and recommend Buy with an investment horizon of 12 months and upside potential of 10.8%.
Valuation Parameters Target Price Weights Per Share Value
At PE, 18.1x based on FY15E EPS of Rs80.6 1,459 40% 584
EV/EBITDA, of 9.5x based on FY15E EBITDA of Rs. 4,425 Cr. 1,568 60% 941
Source: Shah Investor's Research PAT/PBT 0.74 0.76 0.79 0.75 0.75
PBT/EBIT 1.18 1.56 1.27 1.34 1.43
EBIT/Total Income 0.07 0.04 0.05 0.05 0.05
Total Income/Total Assets 3.31 2.69 2.73 2.38 2.41
Total Assets/Total Equity 0.86 0.91 0.98 1.02 1.03
Source: Shah Investor's Research
Maruti Suzuki Ltd. 29 July 2013
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