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Maruti Suzuki (MSIL) - Co. Report - Dated - April 22, 2013




Axis Capital Limited


22 Apr 2013





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Maruti Suzuki (MSIL) is entering into a sweet spot – as all headwinds are now turning into tailwinds. After facing pressures like adverse currency, high discounts, declining demand for petrol cars, and diesel engine shortage for past two years, these factors are now turning favorable:  Currency – Yen/Re has already depreciated  Discounts on petrol cars – have started to decline  Petrol car demand – recovery to be led by reducing fuel price disparity and improving money supply  Diesel engine capacity – new plant in Sep 2013 to address demand concerns Last 15 year data indicates money supply is more important than interest rate for volume recovery. We expect improvement in money supply in FY14 due to government spending, pre-election stimulus and improving GDP trajectory. Ready to accelerate  Higher market share in cyclical entry segment (~80%) as compared to passenger vehicle industry (~40%) bodes well for MSIL  Threat of competition overdone as product portfolio realigned to industry mix which was not the case in FY04  Aggressive focus on UVs (last missing link) to open opportunities in 21% of industry  Doubling of distribution reach (874 cities) gives MSIL first mover advantage to tap huge rural potential. Rural sales accounted for ~28% of volumes in FY13 vs. <10% in FY09  Lower discounts more important than volume recovery ¬– every 1% change in discount on petrol cars impacts EPS by 4%, while a 1% change in volumes (constant mix) impacts EPS by 1.5% Need more acceleration? Valuation Interesting to note that the stock has not only withstood the test of ‘tough’ times but also made a 52-week high in early CY13. This gives us conviction that stock will be in for a massive rerating as drivers emerge. We believe CMP of Rs 1,526 captures only the currency benefits and earnings upgrade led by volume recovery and/or lower discounts is yet to be factored in. Our FY14/15 EPS estimates at Rs 104 and Rs 135 are 6% & 11% above consensus respectively. Maintain BUY with SOTP-based TP of Rs 1,854, which implies 21% upside from CMP. Regards, Chirag Shah (Sr VP – Automobiles) Institutional Equity Research Axis Capital Limited Tel: 9122 4325 1148 Ronak Sarda (AVP – Automobiles) Institutional Equity Research Axis Capital Limited Tel: 9122 4325 1137

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