Maruti Suzuki India. Institutional Equities. Re-initiating Coverage

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1 Re-initiating Coverage Reuters: MRTI.BO; Bloomberg: MSIL IN Strong Growth Drivers Ahead Despite a strong 57% outperformance against Nifty in the past one year, we believe s (MSIL) stock still offers room for an upside backed by a strong 38% earnings growth likely over FY16E-FY17E. MSIL remains the best play on domestic automobile sales recovery with its strong presence in urban as well as rural areas. Further, improving product mix because of rising revenue contribution from new models along with better operating leverage and falling discounts will result in margins improving by ~2bps to 15.5% in FY17E from FY15 levels. We have assigned Buy rating to MSIL with a target price of Rs4,355 (18.5x FY17E earnings). Expect volume CAGR of 14% over FY15-FY17E: MSIL outperformed the passenger vehicle industry in FY15 with a market share gain of 3bps backed by revival in petrol vehicle demand and successful launches of FY14/FY15 such as Alto K1, Celerio and Ciaz models. The company plans to launch three-four vehicles over the next two years, which coupled with the improving sentiment, will drive growth for the company in FY16/FY17. We expect MSIL s volume to post a CAGR of 14% over FY15-FY17E, driven by likely 12%/16% growth in FY16E/FY17E (on the back of new launches and revival in demand for entry segment cars), respectively. Upside risk to our volume estimate for FY17 will be any better-than-expected response to new vehicles. Reduction in discounts, operating leverage to drive margin expansion: MSIL surprised positively in 4QFY15 with a better-than-expected operating margin of 15.9% following a sharp Rs6, decline in discount on QoQ basis. Discounts were at a sixquarter low on account of a richer product mix comprising Swift, Dzire, Celerio and Ciaz cars on which discounts were either minimal or not offered at all. In the near term, we expect a small increase in discounts because of seasonality as 1Q is usually a slack quarter in terms of car sales. However, with demand recovery expected in FY16/FY17, discounts are expected to soften. A Rs3, reduction in discount from the 4QFY15 level could add 5bps to EBITDA margin of the company. With operating leverage expected to kick in and discounts likely to soften, we expect 1bps/58bps improvement in EBITDA margins for FY16E/FY17E to 14.9%/15.5%, respectively. A strong recovery play: We believe MSIL is one of the strong bets for FY17 as the company is a strong play on domestic recovery. Launch of three-four new models likely over FY16E-/FY17E, coupled with improving demand outlook backed by rising first-time buyers, makes MSIL a strong bet for FY17.With the macro-economic situation expected to be brighter in FY17, we believe MSIL is one of the best bets. We expect MSIL s earnings to almost double in two years on the back of demand recovery and a healthy double-digit EBITDA margin. We have assigned Buy rating to MSIL with a target price of Rs4,355 (18.5x FY17E earnings). Y/E March FY13 FY14 FY15 FY16E FY17E Revenues 435, ,6 499,76 57, ,664 YoY EBITDA 42,296 5,959 67,13 84,818 16,279 EBITDA Adj. PAT 23,921 27,83 37,112 53,314 71,13 YoY FDEPS (Rs) ROE ROCE P/E (x) EV/EBITDA EV/Sales May 215 BUY Sector: Automobile CMP: Rs3,693 Target Price: Rs4,355 Upside: 18% Gaurant Dadwal gaurant.dadwal@nirmalbang.com Key Data Current Shares O/S (mn) 32.1 Mkt Cap (Rsbn/US$bn) 1,117.2/ Wk H / L (Rs) 4,31/2,254 Daily Vol. (3M NSE Avg.) 361,771 Shareholding 2QFY15 3QFY15 4QFY15 Promoter FII DII Corporate One -Year Indexed Stock Performance May-15 NSE CNX NIFTY INDEX Price Performance 1 M 6 M 1 Yr Maruti Suzuki Nifty Index.8 (1.1) 13.6 Source: Bloomberg Please refer to the disclaimer towards the end of the document.

2 May-5 Oct-5 Mar-6 Aug-6 Jan-7 Jun-7 Nov-7 Apr-8 Sep-8 Feb-9 Jul-9 Dec-9 May-1 Oct-1 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 May-15 May-5 Oct-5 Mar-6 Aug-6 Jan-7 Jun-7 Nov-7 Apr-8 Sep-8 Feb-9 Jul-9 Dec-9 May-1 Oct-1 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 May-15 Valuation/stock price performance MSIL has outperformed broad-based indices, Nifty and BSE Auto index by 57% and 38%, respectively, in the past one year because of better-than-expected volume growth, margin expansion and favourable movement of the US dollar (USD) and Japanese yen (JPY) against the Indian rupee (INR), leading to earnings upgrade. Further, MSIL stock witnessed a strong re-rating, reflecting improvement in fundamentals with a robust growth in margins over the past one year, and we expect the company to report anearnings CAGR of 38% over FY15-FY17E driven by higher volume and improved profitability. At the current market price, MSIL stock trades at 15.7x FY17E EPS of Rs235. We have assigned Buy rating to MSIL with a TP of Rs4,355 (18.5x FY17E EPS), up 18% from the CMP. Exhibit 1: P/E band (Rs) 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 Source: Bloomberg, Nirmal Bang Research Exhibit 2: Maruti Suzuki P/E trading at premium to historical levels (x) Price Exhibit 3: s relative performance to Nifty P/E Mean 1sd -1sd Source: Bloomberg, Nirmal Bang Research Our earnings estimates versus consensus projections May-15 NSE CNX NIFTY INDEX Source: Bloomberg, Nirmal Bang Research Consensus estimates for FY16/17 witnessed a sharp increase post 4QFY15 following favourable currency movement, fall in discounts and outlook improving on the car Industry led by the macro-economic environment. Our FY16/17 estimates are in line with Bloomberg consensus estimates. Exhibit 4: Our earnings estimates for FY17 are 4% above consensus estimates NBIE estimates Bloomberg estimates Deviation FY16E FY17E FY16E FY17E FY16E FY17E Net sales 57, , ,85 692,43 (2.1) (.7) EBITDA 84,818 16,279 87,17 17,8 (2.7) (.7) EBITDA margin (.1) (.) PAT 53,314 71,13 52,97 68, EPS (Rs) Source: Bloomberg, Nirmal Bang Research 2

3 Investment arguments Expect a volume CAGR of 14% over FY15-FY17E MSIL outperformed the passenger vehicle industry in FY15 with a market share gain of 3bps backed by revival in petrol vehicle demand and successful launches in FY14/FY15 of Alto K1, Celerio and Ciaz car models. The company plans to launch three-four vehicles over the next two years, which coupled with improving market sentiment will drive growth for the company in FY16/FY17. We expect MSIL s volume to post a CAGR of 14% over FY15-FY17E, driven by likely 12%/16 growth in FY16E/FY17E (on the back of new launches and revival in demand for entry segment cars), respectively. Although MSIL outperformed the Industry in FY15, the car industry still remains under pressure and has not grown since the past four years. We believe the stable economic recovery likely in FY17 could trigger strong pent-up demand for cars. Upside risks to our volume assumption for FY17 are 1) Better-than-expected response to new vehicle launches, and 2) Strong pent-up demand on the back of economic recovery. Exhibit 5: Volume projections 1,8, 1,6, 1,4, 1,2, 1,, 8, 6, 4, 2, (2,) FY12 FY13 FY14 FY15 FY16E FY17E Sales Volume YoY sales Exhibit 6: Volume growth drivers for FY15/FY16 Source: Nirmal Bang Research 3

4 Exhibit 7: Volume assumption (Nos.) FY12 FY13 FY14 FY15 FY16E FY17E Alto 38, , , , ,6 311,37 Wagon R 146, , , ,25 169, ,63 Ritz 64,767 59,126 31,712 34,58 37,959 41,755 Swift 153, , ,571 21,338 29, ,237 Celerio ,143 68,143 8,49 89,254 Dzire 11, , ,685 21, , ,471 Ertiga 1,117 76,375 59,822 62,23 66,586 73,245 CIAZ ,349 51,758 56,934 Omni 84,524 69,954 64,164 74,686 82,155 96,942 Eeco 59,537 4,563 37,951 54,287 62,43 68,673 Gypsy A Cross ,6 32,4 Compact SUV , LCV Carry , 16,8 Total Domestic (11.2) Exports (7.9) (5.5) (15.8) Total volume (1.8) 3.3 (1.4) Alto (11.1) (13.5) (3.2) Wagon R (1.1) (7.4) Ritz (5.8) (8.7) (46.4) Swift Celerio Dzire Ertiga - 6,737.5 (21.7) CIAZ Omni (8.4) (17.2) (8.3) Eeco (12.9) (31.9) (6.4) Gypsy (3.4) (47.9) (53.8) A Cross Compact SUV LCV Carry Total -domestic (11.2) Exports (7.9) (5.5) (15.8) Total volume (1.8) 3.3 (1.4) Strong pent-up demand could surprise positively in FY17 Passenger car Industry posted a CAGR of 1% over the past four years and that too largely driven by the launch of new models. Industry growth of 4% in FY15 was driven by market leader MSIL s double-digit growth. With urban customers coming back and the share of first-time buyers increasing since the past four quarters, we believe the car industry could be in for a stronger growth in FY17. MSIL is the market leader and has been outperforming the industry since the past few quarters, deriving 66% of its volume from urban areas, which augurs well for long-term growth of the company. Lower fuel prices to drive growth for cars in entry segment Petrol prices rose more than 4% over FY11 and FY14 and declined sharply since 1QFY15 after global crude oil prices plunged. Following petrol price regulation in India in FY13, the car industry witnessed a shift in demand towards diesel and CNG (compressed natural gas) vehicles as they were a cheaper alternative to petrol vehicles. However, after the slide in global crude oil prices since July 214, petrol car demand witnessed an improvement, which coupled with improving macr-economic environment and consumer sentiment, could drive the demand for entry-level cars (mini+ compact). 4

5 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-15 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-15 Exhibit 8: Registers strong contribution from mini+compact segment, but it is on the decline because of new vehicle launches in premium segment FY11 FY12 FY13 FY14 FY15 FY16E FY17E Mini+ Compact Others Source: Society of Indian Automobile Manufacturers (SIAM), Nirmal Bang Research Exhibit 9: Petrol and diesel price gap narrows from a high of % to 21% currently Exhibit 1:Absolute differential between petrol and diesel prices Petrol Prices Diesel prices Exhibit 11: Industry-wide demand for petrol cars on the rise FY13 FY14 FY15 Diesel Petrol Exhibit 12: MSIL witnesses improved demand for petrol cars FY13 FY14 FY15 Petrol Diesel 5

6 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Apr-14 Jun-14 Aug-14 Oct-14 Feb-15 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Apr-14 Jun-14 Aug-14 Oct-14 Feb-15 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Apr-14 Jun-14 Aug-14 Oct-14 Feb-15 Apr-15 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Apr-14 Jun-14 Aug-14 Oct-14 Feb-15 Apr-15 MSIL witnesses improvement in demand for petrol cars With the fall in domestic petrol prices and narrowing of the gap between petrol and diesel prices, MSIL witnessed improvement in demand for petrol cars, with the diesel car sales ratio declining from ~4% of sales in 3QFY13 to 3% in FY15. With the rise in petrol car demand, MSIL s portfolio of entry segment cars witnessed an improvement as lower fuel prices play a key role in driving the sentiment of an entry segment car buyer, which is evident from rising sales of mini and compact cars in FY15. MSIL derives 62% of its volume from entry segment cars, where fuel prices are an important factor for making a purchase decision. In 1QFY15, MSIL reported growth in urban markets for the first time in 13 quarters with the increase in proportion of first-time buyers (currently 45% versus a low of 37% in FY14). Currently, 62% of MSIL s volume comes from mini and compact cars, which have witnessed improvement in demand since the past four quarters. We believe that because of the fall in petrol prices, MSIL s petrol car sales (73% of volume) witnessed a 15% YoY improvement, while diesel car sales posted a 3% YoY fall. Exhibit 13: Entry segment car sales (Alto + Wagon R) witness improvement in demand in FY15 Exhibit 14: Monthly car sales of MSIL witness improvement since 2QFY15 (Nos) 5, 45, 4, 35, 3, 25, 2, 15, 1, 5, 11, 15, 1, 95, 9, 85, 8, 75, 7, Source: SIAM, Nirmal Bang Research Source: SIAM, Nirmal Bang Research MSIL gains market share in mini and compact passenger car segments MSIL had a double whammy in FY13 because of petrol price deregulation and with competitor Hyundai India launching an entry segment car called Eon in FY12. With the customer sentiment adversely hit and a rise in competitive intensity, MSIL lost market share in mini passenger car segment over FY12 /FY13. However, with the launch of Alto K 1, Alto AMT and the fall in fuel prices, the company successfully regained lost market share in FY15. It is also noteworthy that despite intense competition and new vehicle launches by competitors, MSIL gained market share in mini (+8 bps) as well as compact (+86 bps) segments in FY15. Exhibit 15: MSIL s market share gain in mini car segment (Alto + Wagon R) Exhibit 16: Monthly passenger vehicle market share improves Source: SIAM, Nirmal Bang Research Source: SIAM, Nirmal Bang Research 6

7 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Apr-14 Jun-14 Aug-14 Oct-14 Feb-15 Apr-15 MSIL likely to gain a 17 bps market share over FY16/17 Over FY11 and FY13, the company lost a 56bps market share to competitors as industry demand shifted from petrol to diesel vehicles with a strong bias towards utility vehicles, where MSIL had a limited presence. However, with new vehicle launches over the past two years and with petrol car demand improving, MSIL completely regained lost market share in FY14/FY15. MSIL s dominance in the entry car segment is commendable looking at the way it has weathered the competition in the segment, with most of the launches of competitors in the entry segment failing to make a dent. With three new model launches expected over FY16E/FY17E, we expect MSIL to gain a 17bps market share over FY16E/FY17E. Our market share gain estimates are not optimistic as the company has limited or no experience in the segments in which it is foraying, but given the wide distribution reach and strong brand recall, MSIL could surprise positively, as it has done in the past one year. Exhibit 17: MSIL s market share Source: SIAM, Nirmal Bang Research Strong product line-up to drive market share gains With shortening product life cycles, it is necessary for car-makers to launch new models at regular intervals to drive growth and stimulate market demand. MSIL s industry outperformance and strong market share gains in FY15 were purely on account of its launch of Alto K 1, Celerio and Ciaz models. All these models registered strong demand traction, with Celerio AMT and Ciaz witnessing waiting periods of two-five weeks, which is also partially because of capacity constraints. With competition rising, MSIL has also planned a slew of new launches/variants over the next two years and has set a interesting product pipeline for the same period, which coupled with expected recovery in the automobile sector could surprise on the volume front in FY17. In FY16,MSIL is likely to launch Celerio diesel variant, A Cross (crossover), premium hatchback and a compact SUV are likely to be launched in 216. It is to be noted that new model launches in FY16 are all in a segment where MSIL does not have a significant presence and are in premium segment, excluding Celerio diesel,premium hatchback, (crossover and compact SUV are premium products where the pricing is likely to be ~ 2.x the average realisation currently). It is to be noted that the compact UV segment witnessed strong demand traction over the past three years because of lower excise duty on these models. Further, the company also plans to introduce Celerio diesel model in FY16 and is likely to unveil facelift versions of Ritz and Ertiga, after it launched facelift models of Swift & Dzire in FY16. 7

8 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Apr-14 Jun-14 Aug-14 Oct-14 Feb-15 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Apr-14 Jun-14 Aug-14 Oct-14 Feb-15 Exhibit 18: Upcoming new vehicle launches Dzire Celerio diesel A-Cross Super Carry Ertiga Eeco YRA Swift AMT diesel Ritz Facelift New variant SUV/crossover LCV Facelift Van/facelift Premium hatchback New variant Facelift Exhibit 19: Most new vehicle launches in FY16/FY17 are likely to be in high-end premium segment (Rs Lacs) Eeco Alto 8 Omni Dzire Swift Ritz Celerio Wagon R Alto K1 CIAZ Ertiga Gypsy A cross YRA Celerio Diesel Compact SUV Rising contribution of new models drives ASP growth up and average discount down in 4QFY15 With rising contribution from new models (Celerio + Alto AMT and Ciaz), MSIL reported a 5% YoY growth in realisation in 4QFY15, which drove average discount per vehicle down by a sharp IRs6,/vehicle QoQ. Discounts fell to Rs15,5 per vehicle in 4QFY15 versus Rs215 per vehicle in 3QFY15 and were at a sixquarter low on account of a richer product mix comprising Dzire, Alto AMT Celerio and Ciaz models on which discounts were minimal or no discounts were offered. We believe these four models currently constitute ~3% of MSIL s sales out of which ~ 1% is from Celerio+ Ciaz combination. In the near term, we expect a small increase in discounts because of seasonality as 1Q is usually a slack quarter in terms of car demand. However, with demand recovery expected in FY16/FY17, discounts are likely to soften. A Rs3, reduction in discount per vehicle from 4QFY15 level can add 5bps to EBITDA margin of the company. With operating leverage expected to kick in and discounts likely to soften, we expect 1bps/58bps improvement in EBITDA margins for FY16E/FY17E to 14.9%/15.5%, respectively. Exhibit 2: New models (Celerio + Ciaz ) account for 1% of overall volume - these models have a waiting period of 2-4 weeks Exhibit 21: Around 3% of volume comes from Celerio+ Ciaz + Dzire - these models offer no discounts

9 1QFY13 1QFY12 2QFY13 2QFY12 3QFY12 3QFY13 4QFY12 4QFY13 1QFY13 2QFY13 1QFY14 3QFY13 2QFY14 4QFY13 3QFY14 1QFY14 2QFY14 4QFY14 3QFY14 1QFY15 4QFY14 1QFY13 1QFY15 2QFY15 2QFY15 2QFY13 3QFY15 3QFY15 4QFY15 4QFY15 3QFY13 4QFY13 Q1FY12 1QFY14 Q2FY12 1QFY12 2QFY14 2QFY12 Q3FY12 3QFY12 Q4FY12 3QFY14 4QFY12 Q1FY13 1QFY13 Q2FY13 4QFY14 2QFY13 Q3FY13 3QFY13 1QFY15 Q4FY13 4QFY13 Q1FY14 2QFY15 1QFY14 Q2FY14 2QFY14 Q3FY14 3QFY15 3QFY14 Q4FY14 4QFY14 4QFY15 Q1FY15 1QFY15 Q2FY15 2QFY15 Q3FY15 3QFY15 Q4FY15 4QFY15 Exhibit 22: MSIL witnesses strong QoQ growth ASPs from 1QFY15 because of launch of Celerio and Ciaz 39, 38, 37, 36, 35, 34, 33, Exhibit 23: Sharp QoQ fall in average quarterly discounts Exhibit 24: EBITDA margin surprises positively 25, 2, 15, 1, , 4 2 Exhibit 25: Average quarterly discounts as a percentage of ASPs fall QoQ Exhibit 26: EBITDA per vehicle jumps sharply 7 7, 6 6, 5 5, , 3, 2, 1, 9

10 Competitive intensity to increase in UV segment Most of the new launches over the next four-six quarters are lined up between the small car and UV segments, with compact UV witnessing strong demand traction since the past two years. MSIL will also enter this segment with a compact UV along with Mahindra & Mahindra (M&M), Hyundai India and GM India. It should be noted that Ford India and Renault India witnessed strong success in this segment with the launch of Ecosport and Duster models, respectively Exhibit 27: Compact UV segment s growth FY12 FY13 FY14 FY15 Other Uvs Compact Uvs Exhibit 28: Competitors also planning to launch new vehicles Year Segment OEM Model Small car Tata Kite Hatchback Tata Nano Twist Active Maruti Codename IK-2 Fiat Abrath 5 Honda New Jazz Ford New Figo Ford Figo Compact Sedan Nissan Datsun Redi-Go Sedans Skoda New Octavia Tata Kite Sedan Toyota New Camry Toyota Vios Utility vehicle M&M Codename u-31 M&M CodenameS-11 Maruti SX4 S Cross Maruti Codename im-4 Hyundai ix-25 Hyundai i2 Crossover General Motors Adra General Motors Spin MPV General Motors Trailblazer SUV Renault Lodgy Ssangyong X-1 Tata New Safari Ford New Endeavour 1

11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 Rural strategy pays off Exhibit 29 : Rural vehicle sales up in healthy double-digits MSIL s strategy of penetrating deeper into rural areas has paid off well as growth in these markets helped the company in partially offsetting weakness in urban markets over FY14/FY15. In FY15, rural markets remained under-penetrated (current penetration level is 34%) and MSIL undoubtedly has the best network in India which gives it the edge over rivals in small towns and villages. The company plans to further penetrate rural areas by increasing its presence in villages and towns. Currently MSIL has its presence in 1,25, villages which it plans to increase by another 25, by FY16E. In FY15, rural volume grew by a healthy 23% and accounted for 34% of MSIL s overall volume, which the company is hoping will do well in FY16 despite the ongoing weakness in rural demand. MSIL s strong presence in rural areas is one of the key reasons behind market share gains, as competitors largely focus on big towns and cities. Exhibit 3 : Rural market penetration Exhibit 31: MSIL increasing its reach in villages (Nos.) 45, 4, 35, 3, 25, 2, 15, 1, 5, 336,463 FY14 415,38 FY15 35% 35% 34% 34% 33% 33% 32% 32% 31% 31% 32% 34% FY14 FY15 (Nos.) 16, 14, 12, 1, 8, 6, 4, 2, 15, 125, 93,4 FY14 FY15 FY16 Exhibit 32: Currency movements Currency benefits captured in 4QFY15 Given its strong 15%-16% import content, MSIL s earnings have a high co-relation with the USD and JPY. JPY-INR weakened 7% between 2QFY15 and 4QFY15, the impact of which was visible in 4QFY15 when margins improved 266bps QoQ, capturing the currency benefits. We note that JPY-INR has weakened by 25% over the past 12 quarters, while gross margin increased more than 1% in the same period. With JPY- INR stable at 4QFY15 level, most of the currency benefits have been captured at 4QFY15 level. Further weakening of JPY from the current levels will drive margins, but we are not factoring in this in our estimates. 4Q4Y12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 Current USD INR USD JPY JPY INR Source: Bloomberg Exhibit 33: Strong gross margin expansion over the past few quarters

12 Exhibit 34: Net sales projection We expect earnings CAGR of 38% over FY15-FY17E MSIL offers strong earnings growth visibility over FY16/FY17 backed by multiple triggers like: 1) Recovery in demand, 2) Strong 22bps EBITDA margin expansion, and 3) Strong product pipeline over the next 18 months. We expect MSIL s earnings to almost double in two years on the back of these triggers. Exhibit 35: EBITDA projection 8, 7, 6, 5, 4, 3, 2, 1, FY12 FY13 FY14 FY15E FY16E FY17E Exhibit 36: PAT projection 12, 1, 8, 6, 4, 2, FY12 FY13 FY14 FY15E FY16E FY17E 8, 7, 6, 5, 4, 3, 2, 1, Valuation FY12 FY13 FY14 FY15E FY16E FY17E MSIL has outperformed broad-based indices, Nifty and BSE Auto index by 57% and 38%, respectively, in the past one year because of better-than-expected volume growth, margin expansion and favourable movement of the US dollar (USD) and Japanese yen (JPY) against the Indian rupee (INR), leading to earnings upgrade. Further, MSIL stock witnessed a strong re-rating, reflecting improvement in fundamentals with a robust growth in margins over the past one year, and we expect the company to report an earnings CAGR of 38% over FY15-FY17E driven by higher volume and improved profitability. At the current market price, MSIL stock trades at 15.7x FY17E EPS of Rs235. We have assigned Buy rating to MSIL with a target price of Rs4,355 (18.5x FY17E EPS), up 18% from the CMP. 12

13 Financials Exhibit 37: Income statement Y/E March FY13 FY14 FY15 FY16E FY17E Net Sales 435, ,6 499,76 57, ,664 % growth Raw Material 325,15 313,145 35,79 391,6 47,21 Staff 1,696 13,681 16,66 18,475 21,81 Other expenses 57,737 59,221 66,431 75,649 89,374 Total Expenditure 393, ,47 432, , ,385 EBITDA 42,296 5,959 67,13 84,818 16,279 % growth EBITDA margin Other income 8,124 8,229 8,316 1,811 14,54 Interest 1,898 1,759 2, Gross Profit 11, , , , ,454 % growth Depreciation 18,612 2,8 24,73 25,757 27,811 Profit Before Tax 29,91 36,585 48,682 69,692 92,342 % growth Tax 5,989 8,755 11,57 16,378 21,239 Effective tax rate Net Profit 23,921 27,83 37,112 53,314 71,13 % growth Reported Net Profit 23,921 27,83 37,112 53,314 71,13 % growth EPS (Rs) % growth DPS (Rs) Payout Exhibit 39: Balance sheet Y/E March FY13 FY14 FY15 FY16E FY17E Equity 1,51 1,51 1,51 1,51 1,51 Reserves 184,279 28, , , ,999 Net worth 185,789 29, ,43 279,45 333,59 Net Deffered Tax Liab 4,87 5,866 4,81 4,81 4,81 LT Liabilities/provisions 4,762 4,366 3,98 3,98 3,98 Short-term Loans Long-term Loans 5,429 4,64 1,8 1,8 1,8 Total Loans 13,892 16,851 1,82 1,82 1,82 Liabilities 28,53 236, , ,637 3,11 Gross Block 198,7 227,18 259,24 291, ,24 Depreciation 1,15 119, , , ,385 Net Block 97,992 17,94 115,27 121,95 126,639 Capital work-in-progress 19,48 26,214 26,214 26,214 26,214 Long-term Investments 18,735 13,48 98, , ,176 Other long-term assets 21,747 16,474 13,934 13,934 13,934 Inventories 18,47 17,59 26,15 28,874 32,983 Debtors 14,699 14,137 1,698 13,6 15,682 Cash 7,75 6, ,549 8,362 Liquid Investments 52,48 88,131 29,964 29,964 29,964 Other Current assets 16,556 16,93 14,984 18,217 21,965 Total Current assets 19, ,717 81,98 97,611 18,957 Creditors 41,579 48,975 55,614 65,976 78,994 Other current liabilities/provisions 17,233 19,519 32,262 38,272 45,824 Total current liabilities 58,812 68,494 87,876 14, ,818 Net current assets 5,649 73,222 (5,896) (6,637) (15,862) Total Assets 28,53 236, , ,637 3,11 Exhibit 38: Cash flow Y/E March FY13 FY14 FY15 FY16E FY17E EBIT 31,88 38,3 5,742 69,872 92,522 (Inc.)/dec. in working capital 5,123 7,561 17,939 8,17 1,37 Cash flow from operations 36,931 45,95 68,681 77,979 12,559 Other income 8,124 8,229 8,316 1,811 14,54 Other expenses 1,756 (1,166) Depreciation 18,612 2,8 24,73 25,757 27,811 Tax paid 5,333 8,32 11,57 16,378 21,239 Net cash from operations 43,842 49,34 73,499 76,548 95,78 Capital expenditure (38,1) (34,927) (32,6) (32,5) (32,5) Net cash after capex 5,742 14,17 41,493,48 62,578 Other investment activities (12,69) (14,92) (26,257) (25,189) (,946) Cash from financial activities (9,663) (659) (21,351) (11,492) (16,819) Opening cash balance 24,361 7,75 6, ,549 Closing cash balance 7,75 6, ,549 8,362 Change in cash balance (16,611) (1,454) (6,114) 7, Exhibit 4: Key ratios Y/E March FY13 FY14 FY15 FY16E FY17E Profitability & Return ratios EBITDA margin EBIT margin Net profit margin RoE RoCE Working capital & liquidity ratios Receivables (days) Inventory (days) Payables (days) Current ratio (x) Quick ratio (x) Valuation ratios EV/sales (x) EV/EBITDA (x) P/E (x) P/BV (x)

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