Q3FY17 RESULT UPDATE GEOJIT Research RETAIL EQUITY RESEARCH Maruti Suzuki India Ltd Automobiles BSE CODE: 532500 NSE CODE: MARUTI Bloomberg CODE: MSIL:IN SENSEX: 27,882 BUY CMP Rs5922 TARGET Rs6600 RETURN 11% 27 th Jan, 2017 On a strong footing Maruti Suzuki India Limited (MSIL), a subsidiary of Suzuki Motor Corporation, is India's largest passenger car company, accounting for over 52% of the domestic car market. Despite demonetisation woes, sales/adj PAT grew by 12.3/47.5% on a basis in Q3FY17 due to better product mix & higher other income. EBITDA margin rose 50 bps to 14.8% owing to favourable product mix & lower other expenses. However, rising input costs remain a concern. Revenue to grow at 18% CAGR over FY17-19E owing to robust 13.1% volume CAGR driven by multiple launches & easing capacity constraints. However, we increase our EPS estimates by 8.3/5.2% for FY17E/FY18E primarily led by higher than anticipated other income. We upgrade our rating to BUY with a revised TP of Rs6600 (earlier 5,992) based on 20x FY19E PE. Decent sales growth despite demonetisation blues Revenues of MSIL increased by 12.3% during Q3FY17 mainly driven by healthy realisation which grew 8.6% on account of improved product mix (Baleno, Vitara Brezza) and lower discounts (down by Rs2,949/unit). However, MSIL reported modest volume growth of 3.5%, impacted by demonetisation. Notably, bookings went down initially post demonetisation, but the management indicated that situation has improved on MoM basis. Moreover, it stated that MSIL is witnessing similar recovery in both urban and rural markets. In line operating performance EBITDA rose 16% in Q3FY17 with EBITDA margin expanding to 14.8% (up 50 bps ). Importantly, favourable product mix & lower other expenses (down 150 bps ) led to margin expansion. However, on QoQ basis, EBITDA margin was down 226 bps as input costs (up 160 bps) have started hardening. Notably, the management stated that bulk of steel price rise has been reflected in Q3FY17. Net profit increased by 47.5% owing to higher other income (up 144.1% ) & lower depreciation (down 12.1% ). Given the ramp-up of Gujarat plant and rising commodity prices, we expect EBITDA margin to come under slight pressure in FY18E/FY19E to 15.3/15.2% vs 15.5% in FY17E. Robust product pipeline to drive volume growth ahead MSIL is expected to outperform the PV industry growth on account of strong demand for its successful launches coupled with the strong product pipeline. Further, MSIL s new product launches including Ignis are targeted towards filling gaps in its product portfolio. While Baleno/Vitara Brezza has a waiting period of 24/18 weeks, the newly launched Ignis has a waiting period of ~10 weeks. Notably, the commissioning of the Gujarat plant in Q4FY17 will further cater to the strong demand. Consequently, this would help in reducing the waiting period. Besides, there are several levers which would lead to volume CAGR of 13.1% over FY17-19E: 1) government thrust on rural economy, 2) low interest rate regime and 3) GST-led reduction in cost. Outlook& Valuation We have slightly reduced our revenue estimates by 1.8/3.1% for FY17/FY18E to factor in volume disruption caused by demonetisation. Further, we increase our EPS estimates by 8.3%/5.2% for FY17E/FY18E to factor in higher other income. We have introduced FY19 estimates and rollover our target price to FY19E. Given the leadership position, the robust product pipeline & strong pricing power, we remain upbeat on the stock. We expect revenue/pat to grow at a CAGR of 18%/15% over FY17-19E. Thus, we upgrade our rating from HOLD to BUY with a revised TP of Rs6,600 (earlier 5,992) based on 20x FY19E PE. Company Data Market Cap (Rs cr) 178,877 Enterprise Value (Rs cr) 155,765 Outstanding Shares (cr) 30.2 Free Float 44.0% Dividend Yield 0.6% 52 week high Rs5,972 52 week low Rs3,202 6m average volume (lakh) 7.6 Beta 1.5 Face value Rs5 Shareholding % Q1 FY17 Q2 FY17 Q3 FY17 Promoters 56.2 56.2 56.2 FII s 23.6 25.0 24.5 MFs/Insti 13.6 12.3 12.4 Public& Others 6.6 6.5 6.9 Total 100 100 100 Price Performance 3mth 6mth 1 Year Absolute Return 1% 30% 44% Absolute Sensex 0% (1)% 14% Relative Return* 1% 29% 30% *over or under performance to benchmark index Y.E Mar (Rscr) FY17E FY18E FY19E Sales 67,683 80,126 94,230 Growth (%) 17.2 18.4 17.6 EBITDA 10,520 12,298 14,279 EBITDA Margin (%) 15.5 15.3 15.2 PAT Adj 7,500 8,658 9,968 Growth (%) 64.1 15.4 15.1 Adj.EPS 248.3 286.6 330.0 Growth (%) 64.0 15.4 15.1 P/E 23.9 20.7 17.9 P/B 5.4 4.5 3.8 EV/EBITDA 14.8 12.1 9.8 RoE (%) 25.0 23.9 22.9 Adj.D/E 0.0 0.0 0.0
Quarterly Financials (Standalone) Profit & Loss Account (Rs cr) Q3FY17 Q3FY16 Q2FY17 QoQ 9MFY17 9MFY16 Sales 16,865 15,013 12.3 17,843 (5.5) 49,628 42,226 17.5 EBITDA 2,489 2,145 16.0 3,037 (18.1) 7,777 6,558 18.6 EBITDA Margin (%) 14.8 14.3 50 bps 17 (226 )bps 15.7 15.5 20 bps Depreciation 635 722 (12.1) 630 0.8 1,904 2,063 (7.7) EBIT 1,854 1,423 30.3 2,407 (23.0) 5,874 4,495 30.7 Interest 29 24 18.9 20 47.2 67 61 9.2 Other Income 592 243 144.1 813 (27.2) 1,853 923 100.8 Exceptional Items - - - - - - - - PBT 2,417 1,641 47.3 3,200 (24.5) 7,659 5,356 43.0 Tax 673 458 46.8 802 (16.2) 2,031 1,468 38.3 Reported PAT 1,745 1,183 47.5 2,398 (27.3) 5,629 3,888 44.8 Adjustment - - - - - - - - Adj PAT 1,745 1,183 47.5 2,398 (27.3) 5,629 3,888 44.8 No. of shares (cr) 30.2 30.2-30.2-30.2 30.2 - EPS (Rs) 57.7 39.2 47.5 79.4 (27.3) 186.3 128.7 44.8 Key Operational Parameters Q3FY17 Q3FY16 Q2FY17 QoQ 9MFY17 9MFY16 Volume (Nos.) 387,251 374,182 3.5 418,470 (7.5) 1154,164 1068,846 8.0 Net Realisation (Rs/unit) 429,272 395,113 8.6 420,451 2.1 423,720 388,049 9.2 Source: Company, Geojit Research Change in Estimates Old estimates New estimates Change % Year / Rscr FY17E FY18E FY17E FY18E FY17E FY18E Revenue 68,915 82,665 67,683 80,126 (1.8) (3.1) EBITDA 10,847 12,849 10,520 12,298 (3.0) (4.3) Margins (%) 15.7 15.5 15.5 15.3 (20) bps (20) bps PAT 6,923 8,225 7,500 8,658 8.3 5.3 EPS 229.2 272.4 248.3 286.6 8.3 5.2
Standalone Financials Profit & Loss Account Sales 49,971 57,746 67,683 80,126 94,230 % change 14.1% 15.6% 17.2% 18.4% 17.6% EBITDA 6,713 8,978 10,520 12,298 14,279 % change 29.4% 33.7% 17.2% 16.9% 16.1% Depreciation 2,470 2,824 2,558 2,870 3,182 EBIT 4,243 6,154 7,962 9,428 11,097 Interest 206 82 88 88 88 Other Income 832 462 2,400 2,520 2,646 PBT 4,868 6,535 10,274 11,860 13,655 % change 33.1% 34.2% 57.2% 15.4% 15.1% Tax 1,157 1,964 2,774 3,202 3,687 Tax Rate (%) 23.8% 30.0% 27.0% 27.0% 27.0% Reported PAT 3,711 4,571 7,500 8,658 9,968 Adj* - - - - - Adj PAT 3,711 4,571 7,500 8,658 9,968 % change 33.4% 23.2% 64.1% 15.4% 15.1% No. of shares (cr) 30.2 30.2 30.2 30.2 30.2 Adj EPS (Rs) 122.9 151.4 248.3 286.6 330.0 % change 33.4% 23.2% 64.0% 15.4% 15.1% DPS (Rs) 25.0 35.0 43.8 53.5 62.5 Balance Sheet Cash 18 39 177 347 427 Accounts Receivable 1,070 1,299 1,522 1,802 2,119 Inventories 2,615 3,132 3,458 4,091 4,743 Other Cur. Assets 1,498 1,807 2,100 2,462 2,873 Investments 12,814 17,786 23,686 30,186 38,186 Gross Fixed Assets 26,462 28,901 32,801 36,801 40,801 Net Fixed Assets 12,259 11,875 13,216 14,346 15,163 CWIP 1,883 1,900 1,500 1,500 1,500 Intangible Assets - - - - - Def. Tax (Net) (481) (474) (474) (474) (474) Other Assets 1,393 1,359 1,495 1,644 1,808 Total Assets 33,070 38,722 46,679 55,903 66,345 Current Liabilities 8,629 11,213 13,213 15,673 18,361 Provisions - - - - - Debt Funds 339 77 77 77 77 Other Liabilities 398 424 467 514 565 Equity Capital 151 151 151 151 151 Reserves and Surplus 23,553 26,856 32,770 39,488 47,191 Shareholder s Fund 23,704 27,007 32,921 39,640 47,342 Minority Interest - - - - - Total Liabilities 33,070 38,722 46,679 55,903 66,345 BVPS (Rs) 784.9 894.3 1,089.8 1,312.2 1,567.2 Cash flow Pre-tax profit 4,868 6,535 10,274 11,860 13,655 Depreciation 2,470 2,824 2,558 2,870 3,182 Changes in W.C 836 1,529 1,159 1,183 1,309 Others (723) (380) (2,312) (2,432) (2,558) Tax paid (1,041) (1,964) (2,774) (3,202) (3,687) C.F.O 6,411 8,544 8,905 10,279 11,901 Capital exp. (3,247) (2,457) (3,500) (4,000) (4,000) Change in inv. (2,027) (4,972) (5,900) (6,500) (8,000) Other invest.cf 774 516 2,307 2,417 2,533 C.F - investing (4,500) (6,912) (7,093) (8,083) (9,467) Issue of equity - - 0 - - Issue/repay debt (1,328) (261) - - - Dividends paid (363) (1,057) (1,322) (1,616) (1,888) Other finance.cf (271) (292) (352) (411) (466) C.F - Financing (1,962) (1,611) (1,674) (2,027) (2,354) Chg. in cash (51) 21 138 169 81 Closing cash 18 39 177 347 427 Ratios Y.E March FY15 FY16 FY17E FY18E FY19E Profitab. & Return EBITDA margin (%) 13.4 15.5 15.5 15.3 15.2 EBIT margin (%) 8.5 10.7 11.8 11.8 11.8 Net profit mgn.(%) 7.4 7.9 11.1 10.8 10.6 ROE (%) 16.6 18.0 25.0 23.9 22.9 ROCE (%) 21.7 25.9 34.5 32.9 31.5 W.C & Liquidity Receivables (days) 7.3 7.6 7.6 7.6 7.6 Inventory (days) 25.0 26.9 25.4 25.3 25.0 Payables (days) 46.9 52.5 52.4 52.4 52.3 Current ratio (x) 2.1 2.1 2.3 2.5 2.6 Quick ratio (x) 1.8 1.8 2.1 2.2 2.4 Turnover &Levg. Gross asset T.O (x) 2.0 2.0 2.1 2.2 2.4 Total asset T.O (x) 1.1 1.1 1.0 1.0 1.0 Int. covge. ratio (x) 20.6 75.5 90.5 107.1 126.1 Adj. debt/equity (x) 0.0 0.0 0.0 0.0 0.0 Valuation ratios EV/Sales (x) 3.4 2.9 2.4 1.9 1.5 EV/EBITDA (x) 24.8 18.0 14.8 12.1 9.8 P/E (x) 48.2 39.1 23.9 20.7 17.9 P/BV (x) 7.5 6.6 5.4 4.5 3.8
Recommendation Summary (last 3 years) Dates Rating Target 7150 6150 5150 4150 3150 2150 1150 150 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Source: Bloomberg, Geojit BNP Paribas Research 28 April 2014 REDUCE 1750 17 May 2014 BUY 2560 01 August 2014 BUY 2870 03 November 2014 BUY 3600 15 January 2015 BUY 3900 28 January 2015 BUY 4060 28 April 2015 BUY 4300 15 July 2015 BUY 4460 29 April 2016 HOLD 4152 02 Nov 2016 HOLD 5992 27-Jan2017 BUY 6,600 Investment Rating Criteria Large Cap Stocks; Mid Cap and Small Cap; Buy - Upside is 10% or more. Buy - Upside is 15% or more. Hold - Upside or downside is less than 10%. Accumulate* - Upside between 10% - 15%. Reduce - Downside is 10% or more. Hold - Absolute returns between 0% - 10%. Reduce/Sell - Absolute returns less than 0%. To satisfy regulatory requirements, we attribute Accumulate as Buy and Reduce as Sell. The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. * For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being upgraded to BUY or downgraded to a HOLD, REDUCE or SELL. Geojit BNP Paribas Financial Services Limited has outsourced the preparation of this research report to DION Global Solutions Limitedwhose relevant disclosures are available hereunder.however, Geojit BNP Paribas's research desk have reviewed this report for any untrue statement of material fact or any false or misleading information. General Disclosures and Disclaimers CERTIFICATION I, Rohit Joshi, employee of Dion Global Solutions Limited (Dion) is engaged in preparation of this report and hereby certify that all the views expressed in this research report (report) reflect my personal views about any or all of the subject issuer or securities. Disclaimer This report has been prepared by Dion and the report & its contents are the exclusive property of the Dion and the client cannot tamper with the report or its contents in any manner and the said report, shall in no case, be further distributed to any third party for commercial use, with or without consideration. Geojit BNP Paribas Financial Services Limited has outsourced the assignment of preparation of this report to Dion. Recipient shall not further distribute the report to a third party for a commercial consideration as this report is being furnished to the recipient solely for the purpose of information. Dion has taken steps to ensure that facts in this report are based on reliable information but cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this report. It is hereby confirmed that wherever Dion has employed a rating system in this report, the rating system has been clearly defined including the time horizon and benchmarks on which the rating is based. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this report is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. Dion has not taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. This report is not to be relied upon in substitution for the exercise of independent judgment. Opinions or estimates expressed are current opinions as of the original publication date appearing on this report and the information, including the opinions and estimates contained herein, are subject to change without notice. Dion is under no duty to update this report from time to time. Dion or its associates including employees engaged in preparation of this report and its directors do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of securities, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. The investments or services contained or referred to in this report may not be suitable for all equally and it is recommended that an independent investment advisor be consulted. In addition, nothing in this report constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to individual circumstances or otherwise constitutes a personal recommendation of Dion.
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