20-Dec-17 INDUSTRY - AUTOMOBILE BLOOMBERG MSIL IN BSE Code - 532500 NSE Code - MARUTI NIFTY - 10463 Company Data CMP 9804 Target Price 52wk Range H/L Mkt Capital (Rs Cr) Av. Volume (,000) NA Previous Target Price 8800 Upside RoE to maintain over 2 2 2 1 1 13% RoE Shareholding patterns % 9855/5043 2,96,174 2 21% 2 193 Key Highlights of the Report: The company reported volume of 145300 units vs our estimate of 144850 units, a growth of 1YoY. In YTD FY18, MSIL has registered a growth of 1YoY against the industry growth of about 7-YoY. MSIL holds a market share of 5 in the domestic PV segment. MSIL could be one of the biggest beneficiaries of rural demand recovery as approx. 3 of its sales come from rural areas. We expect RoE to be maintained over 2 in FY19. The stock has achieved our recommended target of Rs.8800. MSIL has recently seen a sharp run up in its price which restricts possibility of near term investment gain. We change our rating from ACCUMULATE to HOLD. Shortly we will be rolling our target to FY20 estimates. Financials/Valu FY15 FY16 FY17 FY18E FY19E Net Sales 50,801 57,589 68,085 79,421 87,715 EBITDA 6,844 8,889 10,358 12,454 13,977 EBIT 4,329 6,067 7,754 9,711 10,967 PAT 3,807 5,504 7,733 8,923 10,249 2QFY18 1QFY18 4QFY17 EPS (Rs) 126 182 249 295 339 Promoters 56.2 56.2 56.2 EPS growth (%) 33% 4 37% 19% 1 Public 43.8 43.8 43.8 ROE (%) 2 21% 2 Total 100.0 100.0 100.0 ROCE (%) 2 21% 2 2 BV 805 1,014 1,227 1,432 1,681 Stock Performance % P/B (X) 4.6 3.7 4.9 6.8 5.8 1Mn 3Mn 1Yr P/E (x) 29.3 20.4 24.2 33.2 28.9 Absolute 17.6 20.2 91.5 Rel.to Nifty 15.8 17.2 62.4 RECENT DEVELOPMENT: Strengthening distribution network 180 170 160 150 140 130 120 110 100 90 80 Dec-16 Jan-17 Feb-17 Mar-17 MARUTI Apr-17 May-17 Jun-17 Jul-17 Aug-17 NIFTY Sep-17 NAVEEN KUMAR DUBEY Naveen.dubey@narnolia.com Oct-17 Nov-17 Dec-17 The management expects that the company would require at least 3,500 sales outlets and over 5,000 workshops over the next few years to expand its distribution reach and better service quality to its customers. Maruti is also taking various initiatives to bring the after sales service close to the customers. During the year, the company added approx. over 200 new dealer workshops. Maruti Suzuki had earmarked Rs 1,000 crore in the current financial year to buy land parcels for new dealerships. Another 43 land deals were finalized in the first half of the year. The company plans to add 1500 new dealerships in the next three years. A separate chain which sells premium models under the Nexa brand has a further 280 outlets. It also runs a network of around 3,293 service centres across the country.
Quarterly Performance Financials 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 YoY % QoQ% FY16 FY17 YoY % Total Volumes ('000) 418 387 414 395 492 2 1,429 1,568 1 Realization(Rs./ car) 426381.8 435500.5 442420 444678 442337-1% 402932.2 434062.5 Net Sales 17,843 16,865 18,333 17,546 21,768 2 2 57,589 68,085 Other Income 813 592 445 683 523-3 -23% 1,481 2,290 5 COGS 12,074 11,674 12,767 12,288 14,978 2 2 38,706 46,742 21% Employee Cost 519 617 616 652 667 2 2,000 2,360 Other Expenses 2,212 2,085 2,402 2,296 2,490 13% 8,054 8,728 EBITDA 3,037 2,489 2,549 2,309 3,634 2 57% 8,768 10,358 Depreciation 630 635 701 683 683 2,822 2,604 - Interest 20 29 23 31 15-2 -5 8 9 9% PBT 3,200 2,417 2,270 2,278 3,460 5 7,419 10,035 3 Tax 802 673 573 742 1,019 27% 37% 2,087 2,616 2 PAT 2,398 1,745 1,709 1,557 2,484 6 5,451 7,591 39% Results in-line, posted strong 2YoY revenue growth Maruti reported results in line with our estimates. Net sales stood at Rs.21768 crore in 2QFY18 a growth of 2 over same quarter previous year. This was driven by YoY volume growth and 3.7%YoY realization growth. Domestic volumes grew by 19%YoY to 457401 units during 2QFY18. Compact segment saw a growth of 4YoY and utility vehicle segment grew by 2 YoY during the quarter. Fast growing UV and Compact segment demand is driven by Vitara Brezza, Dzire and Baleno. These models have a waiting period of 4, 4 and 7 months respectively. Exports volumes have seen growth of 33%QoQ backed by exposure in the new geographies and increase in the Baleno volumes exported to Japan. Realization improved by 3.7%YoY to Rs.442337 per car on account of better product mix and price increases taken during the quarter. Royalty rate for the quarter stood at Rs.1144 crore. Volume and volume growth trend Realization and realization growth trend Volume Volume Growth YoY Realization (Rs./car) Realization Growth (QoQ) 600000 500000 400000 300000 200000 100000 0 1 353335 374182 360402 348443 418470 3% 387251 1 13% 414389 394571 492118 2 1 1 450,000 440,000 430,000 420,000 410,000 400,000 390,000 380,000 370,000 360,000 392,013 401,227 422,967 1% 428,400 426,382 435,500 442,420 1% -1% 444,678 442,337 3% 1% -1%
Higher volumes led economies of scale in 2QFY18 Margin % 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 YoY(+/-) QoQ(+/-) FY16 FY17 YoY(+/-) Gross Margin 3 31% 3 3 31% -0.01 0.01 33% 31% -0.01 EBITDA Margin 17% 1 13% 17% 0.00 0.04 1 1 0.00 PAT Margin 13% 1 9% 9% 11% -0.02 0.03 9% 11% 0.02 EBITDA and EBITDA Margin trend Gross Margin increased by 110bps QoQ on the back of lower commodity prices and lower discounts during the quarter. EBITDA Margin soared 350bps QoQ to 16.7% on account of better product mix, stable commodity prices in 2QFY18, lower discounts and operating leverage. PAT Margin was up by 250bps QoQ to 11.. Higher volumes led economies of scale, increase in the share of higher segment models and material cost reduction initiatives together contributed to the profits. PAT and PAT Margin trend EBITDA (Rs. Crore) EBITDA Margin PAT (Rs. Crore) PAT Margin 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500-2,245 2,145 1 1 2,339 2,216 17% 3,037 1 2,489 2,549 13% 2,309 17% 3,634 1 1 3,000 2,500 2,000 1,500 1,000 500-11% 1,497 1,183 1 1 1,538 1,486 13% 2,398 1 1,745 9% 9% 1,709 1,557 11% 2,484 1 1 Concall Highlights: The company is capable of doing 1.7 million units in FY18. Maruti Suzuki will grow in double digits in the next three years and meet its stated target of selling 2 million vehicles a year by 2020. The company will focus on automotive industry without getting deviated to other diversification plans. Waiting period for Baleno: 16 weeks, Dzire: 16 weeks and Brezza: 20 weeks Exports revenue for the quarter stood at Rs.1565 crores Tax rate would be around 29% in FY18 Discounts for the quarter stood at Rs.15200 Royalty for the quarter Rs.1144 crore Capex Rs.1458 crore for the quarter but for full year FY18 is Rs.4000 crore Inventories would be down by 2 after the festive season. Gujarat plant production 10500 units per month. Management expects that the plant will be producing 20000 units per month by 4QFY18. First time buyers are 5 of total sales. Government employees forms 2 of total Maruti's sales and fleet sales is still in single digits of total sales.
Investment Arguments: Focus on cost control to drive margins- Maruti is constantly working on various cost cutting initiatives which includes; outbound logistics cost and increasing localization. Though Maruti primarily uses roads currently, It worked with the Indian Railways to bring down transportation time substantially. These initiatives may further improve margins by 200 bps by FY20. Electric Vehicles a new opportunity- Being a market leader in the passenger vehicle segment, Maruti is stepping towards developing electric vehicles. Considering the increasing pollution government has already asked all car makers to update their portfolio by 2030. With regard to that Suzuki is developing its own Lithium-ion battery plant in JV with Toshiba and Denso. Currently China is the only producer of Lithium-ion batteries in the world. Unleashing the potential in the international business- Maruti is onset to unleash the potential in the international business by targeting European and Latin American markets. Recently launched and upcoming new products are technologically sound and competent to the export markets. Europe contributes 3 of total export volumes. Reducing dependency on Yen to improve profitability- Maruti is also aggressively working towards bringing down the import content in its cars from an average at the end of FY17 to 1 as part of its vision 2.0 plan. Currently about 14 percent of imports are yen denominated. Management expects to bring it down to 5 percent and typically, 1% movement in yen leads to around 1% change in the operating profit of Maruti. The company also have rupee denominated Royalty contracts with the parent Suzuki Motors for new models. Improvement in rural economy to push entry level car sales - Currently about 30-3 of Maruti's sales come from rural areas. FMCG major like Hind unilever also sees gradual recovery in rural demand going forward led by two consecutive better monsoon, increase in minimum support prices and government s intervention to get the rural economy back on track. Government's focus towards improving rural infrastructure will provide huge opportunities for entry segment cars like; Alto. The entry segment cars have been witnessing slowdown due to increasing popularity of compact segment. In the month of November Alto volume have jumped YoY. Mix changes towards premium segment cars Discount/vehicle decreased qoq in 2QFY18 12 10 8 6 4 Mini Compact Super Compact Mid size Utility Vehicles Vans Export 9% 7% 7% 7% 7% 1 1 1 1 1 9% 1 9% 9% 7% 11% 13% 13% 13% 3% 3% 3% 3 3 37% 3 3 37% 39% 39% 4 25000 20000 15000 10000 Discounts (Rs.) As % of Realization 5. 5. 4. 4. 3.9% 3. 3. 3.7% 3. 6. 5. 4. 3. 2. 2 31% 3 3 27% 27% 27% 2 2 2 5000 0 19600 22000 17600 16800 16100 19000 15200 16600 15200 1. 0.
Improvement in Return Ratios Capacity and Utilization Trend RoE RoCE Total Capacity(in units) Utilization Trend 2 2 1 1 11% 9% 1 13% 13% 2 21% 2 2000000 1800000 1600000 1400000 1200000 1000000 800000 600000 400000 200000 0 9 93% 1260000 1260000 7 8 1510000 1510000 9 1510000 97% 9 1650000 1900000 12 10 8 6 4 2 View & Valuation Maruti Suzuki India Ltd (MSIL) has once again posted a stronger sales number in November 2017, inline with our estimates. The company reported the volume of 145300 units vs our estimate of 144850 units, a growth of 1YoY. In YTD FY18, MSIL has registered a growth of1yoy against the industry growth of about 7-YoY. The company has been able to post growth on the back of growing product portfolio and expanding reach in the interiors of the country, which resulted in 5 market share in November 2017. We believe MSIL to continue this robust growth momentum going ahead. MSIL could be one of the biggest beneficiaries of rural demand recovery as approx. 3 of its sales come from rural areas. FMCG major like Hind Unilever also sees gradual recovery in rural demand going forward led by two consecutive better monsoon, increase in minimum support prices and government s intervention to get the rural economy back on track. We expect that the growing demand for premium segment cars, improving rural infrastructure, lower passenger vehicle penetration will drive the volumes going ahead. We believe Maruti to continue its growth momentum by expanding its premium and high margin product portfolio. We expect RoE to be maintained over 2 in FY19. Currently the stock is trading at 29x FY19E EPS. The stock has achieved our recommended target of Rs.8800. MSIL has recently seen a sharp run-up in its price which restricts the possibility of near-term investment gain. We change our rating from ACCUMULATE to HOLD. Shortly we will be rolling our target to FY20 estimates.
Financials Snap Shot Income Statement Rs in Crores Key Ratios Y/E March FY16 FY17 FY18E FY19E Y/E March FY16 FY17 FY18E FY19E Revenue from Operation 57,589 68,085 79,421 87,715 ROE 2 21% 2 Change (%) 13% 17% 1 ROCE 2 21% 2 2 Other Operating Income Asset Turnover 1.3 1.3 1.3 1.3 EBITDA 8,889 10,358 12,454 13,977 Debtor Days 8.39 6.45 7.00 7.00 Change (%) 3 17% 2 1 Inventory Days 19.9 17.5 17.5 17.5 Margin (%) 1 1 Payable Days 47 45 45 45 Dep & Amortization 2,822 2,604 2,742 3,011 Interest Coverage 0.0 0.0 0.0 0.0 EBIT 6,067 7,754 9,711 10,967 P/E 20 24 33 29 Interest & other finance cost 82 89 87 82 Price / Book Value 3.7 4.9 6.8 5.8 Other Income 1,481 2,290 2,362 2,919 EV/EBITDA 13 18 24 21 EBT 7,466 9,954 11,987 13,803 FCF per Share 1,252 1,109 3,137 2,817 Exceptional Item - - - - Dividend Yield 0.7% 0. 0. 0. Tax 2,087 2,616 3,236 3,727 Minority Int & P/L share of Ass. 119 173 173 173 Assumptions Reported PAT 5,497 7,511 8,923 10,249 Y/E March FY16 FY17 FY18E FY19E Adjusted PAT 5,497 7,511 8,923 10,249 Volume ('000) 1,429 1,569 1,792 1,938 Change (%) 4 37% 19% 1 Volume Growth 11% 1 Margin(%) 1 11% 11% 1 Realization(Rs./vehicle) 4,02,932 4,34,062 4,43,115 4,52,607 Realization Growth 3% Capex(Rs crore) 3,210 3,344 4,000 3,000 Balance Sheet Rs in Crores Cash Flow Statement Rs in Crores Y/E March FY16 FY17 FY18E FY19E Y/E March FY16 FY17 FY18E FY19E Share Capital 151 151 151 151 PBT 7,585 10,127 11,987 13,803 Reserves 30,465 36,924 43,120 50,642 (inc)/dec in Working Capital 8,935 10,413 14,989 17,069 Networth 30,616 37,075 43,271 50,793 Non Cash Op Exp 2,822 2,604 2,742 3,011 Debt 77.4 483.6 208.7 208.7 Interest Paid (+) 82 89 87 82 Other Non Current Liab 1,051 1,633 1,633 1,633 Tax Paid (1,912) (2,323) (3,236) (3,727) Total Capital Employed 30,693 37,559 43,480 51,002 others 1,021 1,868 575 706 Net Fixed Assets (incl CWIP) 13,537 14,563 16,292 16,402 CF from Op. Activities 8,483 10,282 12,154 13,875 Non Current Investments 19,535 26,972 31,308 38,839 (inc)/dec in FA & CWIP (2,456) (3,236) (4,472) (3,121) Other Non Current Assets 1,680 1,603 1,664 1,664 Free Cashflow 6,026 7,046 7,682 10,754 Non Current Assets 34,774 43,162 49,296 56,937 (Pur)/Sale of Investment (12,044) (17,694) (209) (406) Inventory 3,133 3,264 3,807 4,205 others 71 56 (4,336) (7,531) Debtors 1,323 1,203 1,523 1,682 CF from Inv. Activities (7,230) (9,173) (9,017) (11,058) Cash & Bank 51 24 52 60 inc/(dec) in NW Other Current Assets 1,661 1,541 1,986 2,193 inc/(dec) in Debt (235) 253 (275) - Current Assets 7,951 8,798 10,318 11,496 Interest Paid (92) (110) (87) (82) Creditors 7,409 8,369 9,763 10,782 Dividend Paid (inc tax) (909) (1,273) (2,727) (2,727) Provisions 414 472 547 601 others Other Current Liabilities 1,165 1,828 2,132 2,355 CF from Fin. Activities (1,237) (1,129) (3,089) (2,809) Curr Liabilities 10,967 12,753 14,485 15,782 Inc(Dec) in Cash 16 (21) 48 8 Net Current Assets (3,016) (3,955) (4,167) (4,286) Add: Opening Balance 28 43 24 52 Total Assets 42,726 51,961 59,614 68,433 Closing Balance 43 23 72 60
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