Maruti Suzuki India Ltd. 25 th August 2011

Transcription

1 CMP: Rs.1115 Recommendation: BUY Target Price: Rs.1424 Key Data Financial Year End March Market Cap (Rs. Cr.) 32,228 Market Cap (USD Bn.) Week H/L / Avg. 12M volumes ('000) (BSE+NSE) 449 Face Value (Rs.) 5 Bloomberg MSIL IN Reuters MRTI.BO NSE MARUTI BSE Source: BSE, SIHL Research Shareholding Pattern Q1 FY12 Q4 FY11 Promoters 54.2% 54.2% FII's 18.7% 19.2% DII's 18.0% 17.9% Others 9.1% 8.6% Source: BSE, SIHL Research MSIL Sensex (Rebased) Source: Ace Equity, SIHL Research Harsh Mehta (Research Analyst) harsh.mehta@sihl.in Ameya Hardas (Head of Research) ameya.hardas@sihl.in Q1 FY12 Result Update Maruti Suzuki India Ltd. (MSIL) total income for Q1 FY12 was Rs.8,529 Cr. vs. Rs.8,309 Cr. YoY (up 2.6%) and Rs.10,092 Cr. QoQ (down 15.5%). Volumes de-grew by 0.6% YoY (18.0% QoQ) to 281,526 units due to 10 day strike at Manesar plant followed by maintenance shutdown for 5 days in June. Domestic net realization improved by 3.3% QoQ (4.3% YoY) to Rs.297,304, driven by price hike of 1% taken in April-11 and higher proportion of diesel vehicles. Export net realization remained flat on YoY and QoQ. Raw material cost as % total income in Q1 FY12 came higher at 78.5% vs. 77.1% YoY (131 bps) and 77.9% QoQ (54 bps). Higher impact of raw material cost was mitigated by lower operating expenditure which was down 149 bps YoY and 67 bps QoQ. EBITDA margin for Q1 FY12 was 9.5% vs. flat YoY and down 46 bps QoQ PAT for Q1 FY12 was Rs.549 Cr., which was boosted by higher other income of Rs.180 Cr. and lower effective tax rate of 26.4%. Valuation & Outlook MSIL performance in Q1 FY12 was above market expectations. We estimated a volume growth of 7.4% in FY12 and 9.8% in FY13. The growth in volume in FY12 would be lead by launch of the new SWIFT model which has already garnered bookings of 50,000 units. With easing capacity constraints, we expect MSIL to recover and defend its market share despite competitive pressure from global players. Higher contribution from diesel vehicles and richer product mix (increasing contribution from A2 and A3 segment) would lead to higher net realization going forward. We also expect to see at least two new models in FY12E led by the multipurpose vehicle named R3 and a modified Dzire. The management does not expect significant erosion in market share due to rising competition. We also support the same view considering that MSIL is expected to lever its stronger penetration in Tier-II, III cities, which would provide the next leg of volume growth. We estimate EBITDA margin to stabilize in near future at current levels and improve going forward (after H1 FY12) as MSIL has negotiated its steel contracts till H1 FY12 and expects rubber prices to remain stable at current levels. MSIL plans to reduce its vendor imports by 2-3% per annum (currently 15% of net sales), thereby reducing its exposure to Yen. We have valued the stock on weighted average of stock price arrived based on two different valuation parameters. On EV/sales we arrived at a value of 60% weight. On a PE basis we arrived at a value of 40% weight; Based on the weighted average, target price for MSIL stock comes at Rs.1,424/share. We recommend BUY on MSIL with an investment horizon of 12 to 15 months, and an upside potential of 28%. 1 P age

2 Exhibit 1: Quarterly Sales Volumes Maruti Suzuki India Ltd. Segment Models Q1 FY12 Q1 FY11 YoY Q4 FY11 QoQ A1 M800 6,613 6, % 7, % A2 Alto, WagonR, Zen, Swift, Ritz, A-Star 171, , % 223, % A3 SX4, Dzire 30,612 28, % 38, % A4* Kizashi N/A % Total Passenger Cars 208, , % 269, % B MUV Gypsy, Grand Vitara 1,502 2, % % C Van Type Omni, Eeco 40,749 33, % 41, % Total Domestic Sales 250, , % 312, % Export Sales 30,843 40, % 30, % Total Sales 281, , % 343, % Source: Company Data, SIHL Research *Kizashi was launched in February 2011 Exhibit 2: Trend in Net Realization MSIL Domestic Realization MSIL Export Realization 360, , , , , , , , , , , , , , , , , , , , , , , , , , ,101 Source: Company Data, SIHL Research Exhibit 3: Trend in EBITDA Margin EBITDA Margin 15.1% 13.1% 12.2% 12.7% 10.5% 10.0% 9.5% 9.5% 9.5% Source: Company Data, SIHL Research 2 P age

3 Lower sales volume mitigated by higher net realization Volumes for MSIL in Q1 FY12 have been muted with 0.6% decline YoY (18% decline QoQ) to 281,526 units. The drop in volumes was mainly due to 10 days strike in its Manesar plant followed by maintenance shutdown for 5 days in June The Manesar plant rolls out about 1,200 units every day in two shifts. The Manesar plant produces hatchbacks Swift and A-Star and sedans DZire and SX4. MSIL lost production of about 12,600 units valued at Rs.630 Cr. Sales in MSIL A2 segment (Alto, WagonR, Zen, Swift, Ritz and A-Star) grew by 0.3% YoY (decline 23.3% QoQ) to 171,090 units. The slowdown was mainly due higher interest rates and hike in fuel prices. The discounts for Q1 FY12 have been lower than Q4 FY11. However, on a YoY basis it was higher by Rs.1,200. The first time buyer is now 47% of total, additional car in family is 28% (drop of 300 bps YoY) and balance is the replacement segment which comprise of 25%. Blended net realization in Q1 FY12 was higher by 3.3% QoQ (4.3% YoY) to Rs.297,304. Improvement in net realization was mainly due to better product mix with diesel vehicles comprising 21% of domestic sales vs. 19% in Q4 FY11 (prices of diesel vehicles is higher than petrol vehicles), price hike of 1% in April 2011 and lower discounts. Management expects demand to pick up in the festive seasons as inquiries at retail counters continue to be good. To counter the slowdown in demand, we expects discounts to increase in Q2 FY12 from Rs.9,300/unit in Q1FY12. MSIL is further strengthening its distribution network with the objective of deepening its reach. In Q1 FY12, it has added 35 sales outlets in 31 new cities (to 968 outlets covering 697 cities) and added 60 service workshops across in 14 new cities (to 3,006 workshops covering 1,409 cities). This is driving increasing share of rural markets, which now stands at 20% of domestic volumes. Lower royalty payments and other expenses restrict decline in EBITDA margins EBITDA margin for Q1 FY12 came at 9.5% vs. Flat YoY (decline of 46 bps QoQ). Raw material cost as % of total income in Q1 FY12 came higher at 78.5% vs. 77.1% YoY and 77.9% QoQ. Employee cost in Q1 FY12 came higher by 17 bps YoY and 58 bps QoQ. Higher raw material cost and employee expenses were mitigated by lower other expenses, which came lower by 149 bps YoY and 67 bps QoQ. The lower other expenses were mainly attributed to lower royalty payments (around % of total sales) and higher operating leverage. Royalty in Q1 FY12 came lower by 40 bps QoQ to 4.8% as percentage of net sales due to lower export volumes which attracts higher royalty and change in product mix. (There are some models in MSIL portfolio which do not attract any royalty and if there is any proportional increase in those model than royalty as percentage of sales goes down). Management has indicated that royalty will remain between 5-5.5% and difference would be on account of mixed exchange rate and product mix. Selling and distribution expenses was lower vs. Q1 FY11 due to lower advertisement cost (Q1 FY11 had some launches due to which advertisement cost was higher). Higher localization coupled with moderating raw material cost to support margins The company expects raw material cost to remain stable in Q2 FY12 as MSIL has negotiated its steel contracts till H1 FY12 and it does not expect rubber prices to go up in next quarter. MSIL expects prices of raw material would not impact its EBITDA margin going forward. MSIL plans to reduce vendor imports, which stands at 15% of sales at present, by bps per annum, over the next two years, thereby reducing its exposure to Yen. 3 P age

4 Launch of new SWIFT and focus on diesel engine will reinforce its numero uno position MSIL launched new refreshed version of its highly acclaimed SWIFT hatchback in Q2 FY12. The outgoing Swift, first launched in 2005, created a new segment in the compact cars and maintained its dominance throughout. Despite being in the market for 6 years, outgoing Swift maintained its popularity with a waiting period of almost 2 months. MSIL has shifted these 25,000 odd booking to the new version and has garnered further bookings of 25,000 units swelling the order book to over 50,000 units. The new SWIFT will be manufactured only at Manesar, unlike old SWIFT which was manufactured at both Gurgaon and Manesar. MSIL has shifted production of Dzire from Manesar to Gurgaon. Due to this, monthly production run rate is expected to increase to 17,000 units from earlier 12,000 units. As expected from MSIL stable, they have aggressively priced the new SWIFT petrol variant just over Rs.13,000 more than old model and diesel variant around Rs.20,000 more than old model. Higher price differential between petrol and diesel fuel, led to increase in the sales of vehicles powered by alternate fuels. With the change in consumer preference towards diesel, MSIL is increasing its diesel engine capacity from 250,000 units to 290,000 units in the next two months. Diesel vehicles comprised 21% of domestic sales vs. 19% in Q4 FY11. The diesel proportion of volumes has increased from 60% to over 80% in the available models. Additionally, CNG vehicle proportion increased by 25-30% of the model sales in markets, where CNG is available (Maharashtra, Gujarat, NCR). SWIFT is undisputedly the strongest brand in Indian Automobile industry. SWIFT ranks third in terms of sales volumes for MSIL but it provided adequate boost for company to move MSIL higher up value chain. With the launch of new SWIFT, MSIL is in a strategic position to tackle competition from global giants such as Hyundai, Toyota, GM, Volkswagen and Ford. Key Volume Growth Estimates Segment Models FY09 FY10 FY11 FY12E FY13E A1 M800 49,383 33,028 26,485 25,690 23,121 A2 Alto, WagonR, Zen, Swift, Ritz, A-Star 511, , , , ,267 A3 SX4, Dzire 75,928 99, , , ,407 A4* Kizashi Total Passenger Cars 636, , ,457 1,050,282 1,159,020 B MUV Gypsy, Grand Vitara 7,489 3,932 5,666 6,403 7,299 C Van Type Omni, Eeco 77, , , , ,733 Total Domestic Sales 722, ,790 1,132,749 1,238,192 1,375,052 Export Sales 70, , , , ,661 Total Sales 792,167 1,018,347 1,271,015 1,365,397 1,499,713 Source: SIHL Research 4 P age

5 Valuation Valuation Parameters Target Price Weights Per Share Value At PE, 14x based on FY13E EPS of Rs ,379 40% 552 EV/Sales, of 0.90x based on FY13E net sales of Rs.43,360 1,454 60% 872 Target Price 1,424 CMP 1,115 Expected Return 27.7% Source: SIHL Research Indian automotive industry is one of the largest in the world and one of the fastest growing globally. India manufactures over 17.9 mn units (including passenger vehicles, commercial vehicles and two wheelers) and export over 2.3 mn units in FY11. India despite such a large population and one of the fastest growing economies has 17 units of motor vehicle per 1000 people, which is way behind developed market (United States has 779 units of passenger car per 1000 people and Germany has 558 units of passenger car per 1000 people). China with such a large population as India and also one of the fastest growing economies has 128 motor vehicles per 1000 people. India is a unique market where none of the global Auto giants such as Toyota, General Motors, Volkswagen and Ford stand in the top three passenger car players. MSIL market share in passenger car segment is 48.7% with an annual capacity of 1.2 mn units in FY11; followed by Hyundai with a market share of 18.1% and annual capacity of 0.6 mn units. Indian automobile market is at a very nascent stage compared to other emerging markets and generations behind some of the developed markets. With world s second largest population and total annual passenger car sales at just 2 million units (compared to China 9.49 million units in 2010, and USA with 5.66 million in 2010), there is tremendous scope for penetration. Rising incomes have led to an increase in affordability, and Automobile market in India is expected to see huge demand in near future. We believe MSIL sensed this opportunity and is way ahead of other players as is evident from the fact that the next biggest player Hyundai has an installed capacity which is less than half of MSIL. We believe MSIL stands at an extremely strategic position in this supply driven market, reasons being- As of Mar 2011, MSIL s production capacity accounts for almost 60% of the total installed passenger car capacity in India MSIL has planned capacity expansion to 1.7 million by until 2013 MSIL with its entry level brands such as Alto, Wagon R, Zen rules the sub-1200 CC car market MSIL is enjoying the first mover advantage in India, and has acquired an extremely good sense of the consumer psyche Continuous innovation with existing models, and consistent new launches Focus on high fuel-efficient technology Products with options for Petrol, Diesel and CNG variants Very high brand recall, good resale value, and the best sales and dealer network amongst all the existing players in India MSIL also was the first amongst Indian Automobile players to target used cars market with its Maruti True Value brand EV/Sales based analysis is given higher weight of 60%, because we believe MSIL s valuation is primarily driven by its dominance (highest market share) in the domestic passenger vehicle segment. MSIL has, irrespective of short-term issues, is upbeat on its strong Capex plan, for FY12-14, which strengthens our underlying belief in the structural auto growth story in the coming years. MSIL also deserves a premium relative valuation as its installed capacity is the largest in India, and is marginally more than the total combined capacity of the second (Hyundai) and the third (Tata Motors) largest players. Also, Tata Motor has in the most recent quarter (Q1 FY12) recorded de-growth in its passenger car segment. With the launch of new SWIFT (and expected new Dzire in 2H FY12) and easing capacity constraints, We believe MSIL will recover from the loss of production it suffered due to the recent 13 day employee union strikes, and strongly make a comeback and defend its dominant market share. 5 P age

6 Standalone Income Statement (Rs. Cr.) Q1 FY12 Q1 FY11 YoY Q4 FY11 QoQ Gross Sales 9,301 8, % 11, % Excise Duty ,205 Net Sales 8,320 8, % 9, % Other Operating Income Total Income 8,529 8, % 10, % Expenditure Total Expenditure 7,715 7, % 9, % EBITDA % 1, % EBITDA Margin % 9.5% 9.5% 10.0% Depreciation EBIT % % EBIT Margin % 6.7% 6.6% 7.1% Other Income % % Interest PBT % % PBT Margin % 8.7% 7.7% 8.2% Tax Effective Tax Rate 26.4% 27.6% 20.2% PAT % % PAT Margin % 6.4% 5.6% 6.5% EPS, Rs % % 6 P age

7 Standalone Income Statement (Rs. Cr.) FY09 FY10 FY11 FY12E FY13E Gross Sales 23,181 31,948 40,591 42,516 48,150 Excise Duty 2,727 2,849 4,291 4,443 4,790 Net Sales 20,454 29,099 36,300 38,072 43,360 Expenditure Total Expenditure 19,028 25,680 33,380 34,820 39,562 EBITDA 1,426 3,419 2,919 3,253 3,798 EBITDA Margin % 7.0% 11.7% 8.0% 8.5% 8.8% Depreciation ,014 1,173 1,307 EBIT 719 2,594 1,906 2,080 2,491 EBIT Margin % 3.5% 8.9% 5.3% 5.5% 5.7% Other Income 1,008 1,032 1,227 1,316 1,396 Interest PBT 1,676 3,593 3,109 3,375 3,866 PBT Margin % 8.2% 12.3% 8.6% 8.9% 8.9% Tax 457 1, ,021 Effective Tax Rate 27.3% 30.5% 26.4% 26.4% 26.4% PAT 1,219 2,498 2,289 2,484 2,846 PAT Margin % 6.0% 8.6% 6.3% 6.5% 6.6% Adj. EPS Source: Ace Equity, SIHL Research Key Ratios Particulars FY10 FY11 FY12E FY13E BV, Rs Adj. EPS, Rs P/BV, (X) P/E, (X) ROE 21.1% 16.5% 14.6% 14.5% ROCE 20.5% 13.4% 12.0% 12.5% EBITDA Margins 11.7% 8.0% 8.5% 8.8% EV/Sales, (X) Source: SIHL Research 7 P age

8 Contact Details Shah Investor s Home Ltd 164C, Mittal Tower, C Wing, Nariman Point Mumbai Contact: research@sihl.in, /83 You can also access our reports on Bloomberg (ERH SIH<GO>) Disclaimer: The Information provided by SMS or in newsletter or in any document has been prepared by Shah Investor s Home Ltd (SIHL). The Information provided by SMS or in newsletter does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. SIHL or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report or SMS. This Information provided by SMS, reports or in newsletter is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this Information provided by SMS, report or in newsletter should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this information provided by SMS, report or in newsletter (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The investment discussed or views expressed may not be suitable for all investors. This information is strictly confidential and is being furnished to you solely for your information. The information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. The information provided by report or SMS is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject SIHL and affiliates/ group companies to any registration or licensing requirements within such jurisdiction. The distribution of this Information provided by SMS or in newsletter in certain jurisdictions may be restricted by law, and persons in whose possession this Information provided by SMS or in newsletter comes, should inform themselves about and observe, any such restrictions. The information given or Information provided by SMS, report or in newsletter is as of the date of the issue date of report or the date on which SMS provided and there can be no assurance that future results or events will be consistent with this information. This information is subject to change without any prior notice. SIHL reserves the right to make modifications and alterations to this statement as may be required from time to time. However, SIHL is under no obligation to update or keep the information current. Nevertheless, SIHL is committed to providing independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Neither SIHL nor any of its affiliates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Past performance is not necessarily a guide to future performance. The disclosures of interest statements incorporated in the Information provided by SMS, report or in newsletter are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. 8 P age