Result Update Maruti Suzuki India Accumulate Product mix driving margins MSIL reported volume growth of 24.3% YoY and revenue growth rate of 28% YoY in. The base was low because of multiple events such as cascading effects of DEMO and implementation of GST. We expect the outperformance of MSIL (with management guidance of double digit volume growth) to the industry growth rate to continue going forward because of expansion in rural areas, new launches and through premium customer offering from NEXA. We reiterate our Accumulate rating on the stock with price target of ` 1,48. Rural Area Growth to continue MSIL has the widest distribution reach and is expanding it further to capture sales potential of rural India. With good monsoon expected this year and increase in MSP prices, car volumes are expected to show higher growth rate as compared to rural India. MSIL is already having 1/3 of its sales from rural India. Royalty to gradually decline The royalty for the quarter ended was at 5.5% of net sales. At the optimum level this rate is expected to come down to 5.25% of net sales and have some portion of the royalty in ` terms which will help MSIL to maintain better margins going ahead. Margins to improve further with ramp-up of Gujarat Plant Gujarat plant is at the initial stage of production and ramp-up of the production is expected to drive the margins ahead. The ancillary companies, which creates an ecosystem surrounding the plant is yet to pick up which will reduce the logistics cost for the company. For FY19, the production capacity is expected to be at 25, units and a further ramp-up in the capacity is expected to take place in FY2. Raw Material cost to remain under control With stability in the raw material cost expected for coming quarters, the subsequent price hikes as and when taken by MSIL will be positively reflecting in its margins. We believe that MSIL have enough pricing power, but it will remain cautious in the short run to capture higher market share and drive volume. CMP `9,381 Target / Upside ` 1,48/11% BSE Sensex 37,494 NSE Nifty 11,32 Scrip Details Equity / FV ` 1,51mn/` 5/- Market Cap ` 2,833bn USD 41.7bn 52-week High/Low ` 1,/7,378 Avg. Volume (no) 526,21 NSE Symbol MARUTI Bloomberg Code MSIL IN Shareholding Pattern June 18 (%) Promoters 56.2 MF/Banks/FIs 12.7 FIIs 23.9 Public / Others 7.2 Valuation (x) FY18 FY19E FY2E P/E 36.7 29.8 24.3 EV/EBITDA 23.5 19.5 16. ROE 19.8 21.1 22.2 ROCE 28.4 29.7 31. Estimates (` mn) FY18 FY19E FY2E Net Sales 797,627 923,16 1,59,918 EBITDA 12,6 144,33 175,119 PAT 77,218 95,5 116,421 EPS (`) 255.7 314.7 385.5 Result (` Mn) Particulars YoY (%) QoQ (%) Net Sales 224,594 175,457 28. 211,656 6.1 Total Raw Mat 5,2 122,884 26.2 143,763 7.8 Total Operating Cost 191,83 2,145 25.6 181,56 5.3 EBIDTA 33,511 23,312 43.8 3, 11.1 Other Income 2,718 6,827 (6.2) 5,95 (54.3) Income 27 313 (33.9) 2,731 (92.4) Depreciation 7,198 6,839 5.2 7,25 2.5 PBT 28,824 22,987 25.4 26,344 9.4 Tax 9,71 7,423 22.2 7,523 2.6 Net Profit 19,753,564 26.9 18,821 5. EPS (in `) 65.4 51.5 26.9 62.3 5. OPM (in %) 14.9 13.3 14.2 Volumes (in Units) 49,479 394,571 24.3 461,773 6.2 Realization (` / Unit) 457,97 444,678 3. 458,355 (.1) VP - Research: Priyank Chandra Tel: +9122 496 9737 E-mail: priyank@dolatcapital.com Associate: Kushal Shah Tel: +9122 496 9768 E-mail: kushals@dolatcapital.com July 3, 218
Valuation MSIL will continue to enhance product portfolio across segments ensuring higher realization and higher margins. Capacity constraints are expected to ease out and MSIL should be able to meet expected demand. With outperformance to the industry and strong return ratios, we believe that valuation should remain high. We reiterate our Accumulate recommendation with a target price of Rs 1,48. Concall KTAs Higher sales volume, favorable product mix and stabilization of commodity prices contributed to revenue growth for MSIL in. MSIL management doesn t see any significant upswing in the commodity pricing in the coming quarters. MSIL expects to outperform the industry with double digit growth rate while the industry is expected to grow at 8-9% in FY19. Rural market (~1/3 rd of sales revenue) is expected to grow at a higher rate than the urban market, mainly due to distribution headroom availability and increasing affordability in the rural area. Cab aggregator division attributed to 5% of the volume share in. Footfall at the showrooms have declined while enquiries and bookings have gone up by % and 13% respectively over the same period in last year. Average discounts for stood at Rs,161 which was sequentially higher by ~` 1,. For SMG plant in Gujarat, MSIL expects to maintain current production level at 66, units per quarter for FY19. Plant capacity is at ~25, units. Second line at the SMG plant is expected to become operational in early FY2 which will be sufficient to meet market demand. Royalty rate for MSIL is at 5.5% of net sales for the quarter. At optimal level, royalty rate is expected to decline to 5.25%. Higher operating income was because of freight recovery to the extent of ` 2,45mn Other income was dragged down by 6% due to the Mark to market loss of ` 45mn attributed to bond rates. Average tax rate for FY19 is expected at 29%. July 3, 218 2
25 2 1 5 131 Net Sales (` in Mn) 136 148 149 147 176 166 18 171 214 189 26 218 4 35 3 25 2 1 5 EBITDA (` in Mn) 21.6731 22.4538 21.452 23.5 22.148 3.374 24.89 25.595 23.312 36.341 3.378 3. 33.511 Net profit (` in Mn) Gross Margin % 3 25 2 1 5 12.89 14.9696 11.83 11.336 14.99 23.98 17.445 17..564 24.843 17.99 18.821 19.753 35 34 33 32 31 3 29 28 OPM % Net Profit Margin (%) 18 17 16 14 13 12 14 13 12 11 1 9 8 7 6 July 3, 218 3
Volumes and Realisations Gross Spread and Gross Margin 6 Volume (in ') - LHS Realisations / Unit (` in ') - RHS 46 8 EBITDA / Unit (` in ') - LHS EBITDA Margin % - RHS 18 5 4 44 42 6 17 16 3 4 4 2 1 38 36 2 14 13 34 12 EBIDTA Spread and EBIDTA Margin 14 135 13 125 12 1 Gross Profit / Unit (` in ') - LHS Gross Profit Margin (%) - RHS 35 34 33 32 31 3 29 11 28 July 3, 218 4
Income Statement (` mn) Particulars Mar17 Mar18 Mar19E Mar2E Net Sales 68,348 797,627 923,16 1,59,918 Other Income 23,1 2,455 21,478 22,552 Total Income 73,349 818,82 944,493 1,82,47 Total Expenditure 576,831 677,12 778,686 884,799 Cost of Material Cons. 426,296 449,413 516,825 589,18 Purc. of Stock-In-Trade 44,821 99,93 1,919 132,147 Change in Inventories (3,81) 47 45 4 Employees Benefit Exp. 23,31 28,338 32,589 36,499 Other Expenses 87,241 99,9 113,93 127,571 EBIDTA (Excl. OI) 13,517 12,6 144,33 175,119 EBIDTA (Incl. OI) 126,518 141,7 165,88 197,671 Interest 894 3,457 2, 1,828 Depreciation 26,21 27,579 29,785 31,87 PBT & EO Items 99,63 11,34 133,873 163,973 Tax 26,11 32,816 38,823 47,552 Net Profit 73,52 77,218 95,5 116,421 Balance Sheet (` mn) Particulars Mar17 Mar18 Mar19E Mar2E Sources of Funds Equity Capital 1,51 1,51 1,51 1,51 Other Equity 362,81 416,63 481,81 565,74 Net Worth 364,311 417,573 482,591 567,214 Loan Funds 4,836 1,18 4,1 3, Deferred Tax Liability 4,662 5,589 6,148 6,763 Total Capital Employed 373,89 424,27 492,839 576,977 Applications of Funds Gross Block 186,595 214,239 264,239 314,239 Less: Accumulated Dep. 53,668 8,649 11,434 142,35 Net Block 132,927 133,59 3,85 171,934 Capital Work in Progress 12,523 21,259 1, 1, Investments 285,47 353,148 423,778 58,533 Current Assets, Loans & Advances Inventories 32,622 31,68 4,461 43,558 Sundry Debtors 11,992 14,618 17,72 17,423 Cash and Bank Balance 138 711 26,569 28,793 Loans and Advances 27,388 27,447 1 1 Other Current Assets 9,869 11,32 1,188 9,169 sub total 82,9 85,74 95,2 99,44 Less: Current Liabilities & Provisions Current Liabilities 133,988 163,566 183,194 25,177 Provisions 4,79 5,865 6,569 7,357 sub total 138,697 169,431 189,763 212,534 Net Current Assets (56,688) (83,727) (94,743) (113,491) Total Assets 373,89 424,27 492,839 576,977 E Estimates Cash Flow (` mn) Particulars Mar17 Mar18 Mar19E Mar2E Profit before tax 99,63 11,34 133,873 163,973 Depreciation & w.o. 26,21 27,579 29,785 31,87 Net Interest Exp 522 2,778 2, 1,828 Direct taxes paid (23,214) (3,55) (38,823) (47,552) Change in Working Capital 21,94 28,58 36,874 2,971 Other (22,79) (2,49) 571 6 (A) CF from Opt. Activities 12,793 117,85 164,43 171,75 Capex (33,886) (38,918) (38,741) (5,) Free Cash Flow 68,97 78,932 125,689 121,75 Inc./ (Dec.) in Investments (58,541) (45,46) (7,63) (84,756) Other 648 1,143 (B) CF from Inv. Activities (91,779) (82,821)(19,371)(134,756) Inc./(Dec.) in Debt 2,527 (3,728) 2,992 (1,1) Interest exp net (1,95) (3,464) (2,) (1,828) Dividend Paid (Incl. Tax) (12,725) (27,268) (3,31) (31,798) (C) CF from Financing (11,293) (34,46) (29,189) (34,725) Net Change in Cash (279) 569 25,87 2,224 Opening Cash balances 49 13 699 26,569 Closing Cash balances 13 699 26,569 28,793 Important Ratios Particulars Mar17 Mar18 Mar19E Mar2E (A) Measures of Performance (%) EBIDTA Marg. (excl. O.I.).2.1.6 16.5 Interest / Sales.1.4.2.2 Tax/PBT 26.2 29.8 29. 29. Net Profit Margin 1.8 9.7 1.3 11. (B) As Percentage of Net Sales Cost of materials cons. 62.7 56.3 56. 55.6 Employee Benefits Exp. 3.4 3.6 3.5 3.4 Other Expenses 12.8 12.5 12.3 12. (C) Measures of Financial Status Interest Coverage (x) 141.5 4.8 77.1 18.2 Avg. Cost Of Debt (%) 31.9 116.3 82.6 51.5 Debtors Period (days) 6.4 6.7 7. 6. Closing stock (days) 17.5 14.5 16.. Inventory Turn. Ratio (x) 2.9 25.2 22.8 24.3 Fixed Assets Turnover (x) 3.6 3.7 3.5 3.4 WC Turnover (x) (12.) (9.5) (9.7) (9.3) Non-Cash WC (` Mn) (56,826) (84,438) (121,312) (142,283) (D) Measures of Investment EPS (`.) 243.4 255.7 314.7 385.5 CEPS (`.) 329.5 347. 413.4 491. DPS (`.) 75. 8. 85. 9. Dividend Payout (%) 3.8 31.3 27. 23.3 Book Value (`.) 1,26.3 1,382.7 1,598. 1,878.2 RoANW (%) 22.2 19.8 21.1 22.2 RoACE (%) 29.8 28.4 29.7 31. RoAIC (%) 29.8 28.5 3.6 32.7 (E) Valuation Ratios CMP (`.) 9,381 9,381 9,381 9,381 P/E (x) 38.5 36.7 29.8 24.3 Market Cap. (`. Mn.) 2,833,62 2,833,62 2,833,62 2,833,62 MCap/ Sales (x) 4.2 3.6 3.1 2.7 EV (`. Mn.) 2,837,76 2,833,459 2,81,593 2,87,269 EV/Sales (x) 4.2 3.6 3. 2.6 EV/EBDITA (x) 27.4 23.5 19.5 16. P/BV (x) 7.8 6.8 5.9 5. Dividend Yield (%).8.9.9 1. E Estimates July 3, 218 5
May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 DART RATING MATRIX Total Return Expectation (12 Months) Buy > 2% Accumulate 1 to 2% Reduce to 1% Sell < % Rating and Target Price History 11 1 9 8 7 6 Month Rating TP (`) Price (`)* Jan-18 Accumulate 1,18 9,277 Apr-18 Accumulate 1,59 8,813 Jun-18 Accumulate 1,59 8,8 * As on Recommendation Date 5 Maruti Suzuki Target DART Team Purvag Shah Managing Director purvag@dolatcapital.com +9122 496 9747 Amit Khurana, CFA Head of Equities amit@dolatcapital.com +9122 496 9745 CONTACT DETAILS Equity Sales Designation E-mail Direct Lines Dinesh Bajaj VP - Equity Sales dineshb@dolatcapital.com +9122 496 979 Kartik Sadagopan VP - Equity Sales kartiks@dolatcapital.com +9122 496 9762 Kapil Yadav VP - Equity Sales kapil@dolatcapital.com +9122 496 9735 Equity Trading Designation E-mail P. Sridhar SVP and Head of Sales Trading sridhar@dolatcapital.com +9122 496 9728 Chandrakant Ware VP - Sales Trading chandrakant@dolatcapital.com +9122 496 977 Shirish Thakkar VP - Head Domestic Derivatives Sales Trading shirisht@dolatcapital.com +9122 496 972 Kartik Mehta VP - Head Asia Derivatives Sales Trading kartikm@dolatcapital.com +9122 496 97 Bhavin Mehta VP - Derivatives Strategist bhavinm@dolatcapital.com +9122 496 975 Hardik Mehta Sales Trader hardikm@dolatcapital.com +9122 496 973 Dolat Capital Market Private Limited. 2, Rajabahadur Mansion, 1st Floor, Ambalal Doshi Marg, Fort, Mumbai - 4 1
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