In a league of its own ; Buy October 28, 2017 Saksham Kaushal sakshamkaushal@plindia.com +91 22 66322235 Poorvi Banka poorvibanka@plindia.com +91 22 66322426 Rating BUY Price Rs8,115 Target Price Rs9,250 Implied Upside 14.0% Sensex 33,157 Nifty 10,323 (Prices as on October 27, 2017) Trading data Market Cap. (Rs bn) 2,450.7 Shares o/s (m) 302.0 3M Avg. Daily value (Rs m) 3444.9 Major shareholders Promoters 56.21% Foreign 25.29% Domestic Inst. 11.46% Public & Other 7.04% Stock Performance (%) 1M 6M 12M Absolute 4.9 27.4 38.5 Relative (1.5) 17.0 19.7 How we differ from Consensus EPS (Rs) PL Cons. % Diff. 2019 339.9 323.0 5.2 2020 398.7 390.3 2.1 Price Performance (RIC: MRTI.BO, BB: MSIL IN) (Rs) 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Oct 16 Dec 16 Source: Bloomberg Feb 17 Apr 17 Jun 17 Aug 17 Oct 17 It is safe to say that Maruti Suzuki s (MSIL s) Q2FY18 result surpassed expectations. The beat was on account of higher than estimated gross margins which was partially offset by lower than expected other income. Overall revenue growth for the quarter was up 21.2% YoY at Rs217.7bn, with absolute EBITDA up 21% YoY at Rs36.8bn (PLe: Rs30.9bn) and EBITDA margins at 16.9% (PLe: 14.3%), down 10bps YoY/ up 360bps QoQ. With higher tax rate and lower non operating income, net profit for MSIL stood at Rs24.8bn, up 3.6% YoY and ahead of our estimate of ~Rs21bn. EBITDA margins at 16.9% improved 360 bps sequentially on back of a favourable product mix with new premium products contributing ~60 65% of sales, lower discounting, operating leverage and favourable forex movement. However, margins were marginally impacted by commodity cost pressure and higher advertisement expenditure. Competitive intensity fading, Maruti Suzuki continuing to gain market share and further intensifying its hold on the domestic PV market with successful product launches, underlines MSILs strong competitive position. However, near term capacity constraints are a slight dampener. We expect revenue CAGR of 13.6% over FY18 20e and with an adjusted profit CAGR of 17.1%, and an EBITDA CAGR of 16.4 % over the same period. We marginally increase our volume estimate by 2%/1.4% for FY18/19, resulting in an EBITDA increase of 4%/4.1% for FY18/19. The stock is currently trading at 23x FY18e EPS and 21x FY19e EPS. We value the stock at 25x Sep19e and arrive at a target price of Rs9,250 (previously Rs8,193) and upgrade MSIL to Buy. Contd...2 Key financials (Y/e March) 2017 2018E 2019E 2020E Revenues (Rs m) 680,348 796,780 906,044 1,028,120 Growth (%) 18.2 17.1 13.7 13.5 EBITDA (Rs m) 102,494 122,755 143,548 166,236 PAT (Rs m) 73,377 87,023 102,652 120,422 EPS (Rs) 243.0 288.2 339.9 398.7 Growth (%) 36.4 18.6 18.0 17.3 Net DPS (Rs) 75.0 90.0 100.0 101.0 Profitability & Valuation 2017 2018E 2019E 2020E EBITDA margin (%) 15.1 15.4 15.8 16.2 RoE (%) 22.2 22.2 22.4 22.3 RoCE (%) 22.0 21.9 22.1 22.1 EV / sales (x) 3.6 3.1 2.7 2.4 EV / EBITDA (x) 24.0 19.9 17.0 14.6 PE (x) 33.4 28.2 23.9 20.4 P / BV (x) 6.8 5.8 5.0 4.2 Net dividend yield (%) 0.9 1.1 1.2 1.2 Source: Company Data; PL Research Q2FY18 Result Update Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report
MSIL s total income grew a strong 22% YoY to Rs217.7bn (above exp of ~Rs216.2bn). This was on the back of 17.6% YoY volume growth and 3.6% YoY improvement in realizations. Export revenue for the quarter stood at Rs15.65bn, flat YoY but up 16% QoQ. EBITDA growth was robust at 21% YoY to Rs36.8bn (exp Rs30.9bn) with EBITDA margin dipping a slight 10bps YoY but higher 360bps QoQ at 16.9%, ahead of our expectations of 14.3%. Gross margins were lower 110bps YoY but higher 120bps QoQ. Staff cost as a % of sales increased 20bps YoY but was down 60bps QoQ while other expenses as a % of sales lowered 120bps YoY and 180bps QoQ. The sequential improvement in margins was mainly on account of a favourable product mix with new products forming ~60 65% of total volumes, lower discounting, operating leverage and favourable forex. Margins were impacted YoY by commodity cost pressures as well as higher advertisement expenses which were somewhat offset by cost reduction measures. With higher depreciation provision and effective tax rate (at 29% in Q2FY18 against 25% in Q2FY17) along with lower non operating income (down ~36% YoY), net profit for MSIL stood at Rs24.8bn, up 3.6% YoY (PLe: ~Rs21bn). Conference call highlights: The company has guided FY18 volumes to be ~1.7mn units (~9% YoY growth). Blended discounts in Q2FY18 were at Rs15,200/vehicle v/s Rs16,600/vehicle in Q1FY18. With commodity costs on an upward trajectory, the company has cautioned of higher raw material costs in H2FY18. For Q2FY18, volumes from SMG stood at ~34K units (Q1FY18 volumes were at ~24K units) and are expected to improve to 10.5K/month during Q3 and 20K units per month by Q4. Total FY18 production from SMG is expected to be ~150K units. Overall inventory at the dealer level is expected to be ~80 85K by October end. Royalty for the quarter stood at Rs11.44bn v/s Rs8.86bn in Q1FY18. Share of first time buyers remains at ~50% of total sales in Q2FY18. Sales to govt employees has grown by ~20% YoY over Q2FY18 while sales to fleet owners has seen low single digit growth. Rural sales have increased 22% YoY over the quarter. Capex guidance for FY18 remains at ~Rs40 45bn, of which Q2FY18 capex was at ~Rs15bn. October 28, 2017 2
Exhibit 1: Q2FY18 Result Overview (Rs m) Y/e March Q2FY18 Q2FY17 YoY gr. (%) Q1FY18 H1FY18 H1FY17 YoY gr. (%) Net Revenues 217,682 178,428 22.0 175,457 393,139 327,875 19.9 Raw Materials 149,780 120,741 24.1 122,884 272,664 222,277 22.7 % of Net Sales 68.8 67.7 70.0 69.4 67.8 Personnel 6,666 5,191 28.4 6,521 13,187 10,981 20.1 % of Net Sales 3.1 2.9 3.7 3.4 3.3 Manufacturing & Other Exp 24,461 22,122 10.6 22,740 47,201 42,095 12.1 % of Net Sales 11.2 12.4 13.0 12.0 12.8 Total Expenditure 180,907 148,054 22.2 152,145 333,052 275,353 21.0 EBITDA 36,775 30,374 21.1 23,312 60,087 52,522 14.4 EBITDA Margin (%) 16.9 17.0 13.3 15.3 16.0 Depreciation 6,825 6,300 8.3 6,839 13,664 12,680 7.8 EBIT 29,950 24,074 24.4 16,473 46,423 39,842 16.5 Interest Expenses 150 197 (23.9) 313 463 378 22.5 Non operating income 5,229 8,126 (35.7) 6,827 12,056 13,007 (7.3) PBT 35,029 32,003 9.5 22,987 58,016 52,471 10.6 Tax Total 10,186 8,023 27.0 7,423 17,609 13,582 29.6 Tax Rate (%) Total 29.1 25.1 16.0 32.3 30.4 25.9 17.3 Reported PAT 24,843 23,980 3.6 15,564 40,407 38,889 3.9 Adj. PAT 24,843 23,980 3.6 15,564 40,407 38,889 3.9 Source: Company Data, PL Research Exhibit 2: Operating Metrics (Rs m) Y/e March Q2FY18 Q2FY17 YoY gr. (%) Q1FY18 H1FY18 H1FY17 YoY gr. (%) Car Sales Volume (nos) 492,118 418,470 17.6 394,571 886,689 766,913 15.6 Net Realisation/Vehicle 442,337 426,382 3.7 444,678 443,379 427,526 3.7 Material cost / vehicle 304,358 288,530 5.5 311,437 307,508 289,833 6.1 Gross Profit / vehicle 137,979 137,852 0.1 133,241 135,871 137,692 (1.3) Employee cost /vehicle 13,546 12,405 9.2 16,527 14,872 14,318 3.9 Other expenses / vehicle 49,706 52,864 (6.0) 57,632 53,233 54,889 (3.0) EBITDA/vehicle 74,728 72,583 3.0 59,082 67,766 68,485 (1.1) Net Profit/vehicle 50,482 57,304 (11.9) 39,445 45,571 50,708 (10.1) Source: Company Data, PL Research October 28, 2017 3
Income Statement (Rs m) Net Revenue 680,348 796,780 906,044 1,028,120 Raw Material Expenses 467,316 546,591 622,452 705,290 Gross Profit 213,032 250,189 283,592 322,830 Employee Cost 23,310 27,040 31,772 37,332 Other Expenses 87,228 100,394 108,272 119,262 EBITDA 102,494 122,755 143,548 166,236 Depr. & Amortization 26,021 27,017 28,932 29,955 Net Interest (514) (479) (864) (1,184) Other Income 22,798 24,799 27,430 30,293 Profit before Tax 99,413 120,865 142,572 167,253 Total Tax 26,036 33,842 39,920 46,831 Profit after Tax 73,377 87,023 102,652 120,422 Ex Od items / Min. Int. Adj. PAT 73,377 87,023 102,652 120,422 Avg. Shares O/S (m) 302.0 302.0 302.0 302.0 EPS (Rs.) 243.0 288.2 339.9 398.7 Cash Flow Abstract (Rs m) C/F from Operations 127,844 102,847 134,741 153,965 C/F from Investing (119,229) (75,000) (100,000) (110,000) C/F from Financing (8,875) (27,990) (30,867) (31,073) Inc. / Dec. in Cash (260) (143) 3,874 12,892 Opening Cash 391 131 14,988 18,862 Closing Cash 131 (12) 18,862 31,753 FCFF 90,913 78,204 89,124 108,444 FCFE 93,440 78,154 89,074 108,394 Key Financial Metrics Growth Revenue (%) 18.2 17.1 13.7 13.5 EBITDA (%) 15.8 19.8 16.9 15.8 PAT (%) 36.4 18.6 18.0 17.3 EPS (%) 36.4 18.6 18.0 17.3 Profitability EBITDA Margin (%) 15.1 15.4 15.8 16.2 PAT Margin (%) 10.8 10.9 11.3 11.7 RoCE (%) 22.0 21.9 22.1 22.1 RoE (%) 22.2 22.2 22.4 22.3 Balance Sheet Net Debt : Equity Net Wrkng Cap. (days) (33) (26) (26) (26) Valuation PER (x) 33.4 28.2 23.9 20.4 P / B (x) 6.8 5.8 5.0 4.2 EV / EBITDA (x) 24.0 19.9 17.0 14.6 EV / Sales (x) 3.6 3.1 2.7 2.4 Earnings Quality Eff. Tax Rate 26.2 28.0 28.0 28.0 Other Inc / PBT 22.9 20.5 19.2 18.1 Eff. Depr. Rate (%) 13.9 12.6 11.2 9.9 FCFE / PAT 127.3 89.8 86.8 90.0 Source: Company Data, PL Research. Balance Sheet Abstract (Rs m) Shareholder's Funds 361,711 421,554 494,006 583,926 Total Debt 4,836 4,786 4,736 4,686 Other Liabilities 4,640 1,000 1,000 1,000 Total Liabilities 371,187 427,340 499,742 589,612 Net Fixed Assets 145,415 148,398 164,467 179,512 Goodwill Investments 282,284 312,284 367,284 432,284 Net Current Assets (56,512) (33,343) (32,009) (22,184) Cash & Equivalents 131 14,988 18,862 31,753 Other Current Assets 77,251 101,874 114,604 128,388 Current Liabilities 133,894 150,204 165,475 182,326 Other Assets Total Assets 371,187 427,340 499,742 589,612 Quarterly Financials (Rs m) Y/e March Q3FY17 Q4FY17 Q1FY18 Q2FY18 Net Revenue 168,648 183,334 175,457 217,682 EBITDA 24,890 25,595 23,312 36,775 % of revenue 14.8 14.0 13.3 16.9 Depr. & Amortization 6,349 7,010 6,839 6,825 Net Interest 290 226 313 150 Other Income 5,919 4,491 6,827 5,229 Profit before Tax 24,170 22,850 22,987 35,029 Total Tax 6,725 5,745 7,423 10,186 Profit after Tax 17,445 17,105 15,564 24,843 Adj. PAT 17,445 17,105 15,564 24,843 Key Operating Metrics Total volumes (units) 1,568,603 1,774,127 1,962,937 2,160,252 Realisation per unit (Rs) 426,554 441,816 454,191 468,411 Gross margin per unit (Rs) 135,810 141,021 144,473 149,441 EBITDA per unit (Rs) 65,341 69,192 73,129 76,952 Profit per unit (Rs) 46,779 49,051 52,295 55,744 Source: Company Data, PL Research. October 28, 2017 4
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