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Maruti Suzuki India Ltd. | Q2FY14 Result Update




IndiaNivesh Securities Pvt Ltd


28 Oct 2013





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Maruti Suzuki India Ltd. | Q2FY14 Result Update Above street expectations Maruti Suzuki reported Q2FY14 numbers above street expectation due to favorable currency movement (100 bps QoQ positive lag effect of currency on indirect imports) and softening in commodity prices. Net revenue increased by 20% YoY and 3% QoQ to Rs. 102.11 bn (vs. consensus of Rs. 102.33 bn) led by volume growth (up 20% YoY) on a lower base (labor issues related production constraints last year). Average realization improves 6% YoY on higher exports realization and price hike. Average JPY realization stood at ~96/$ in Q2FY14 vs. ~94/$ in Q1FY14 and INR stood at 62/$. Sequential decline in realizations was due to weaker product mix (due to lower contribution (diesel mix stood at 30% vs. 34% in Q1FY14) of high margin diesel cars like Ertiga, DZire and Swift,) and consequent high discounts offset by higher exports realization. The company offered average discounts of Rs 17500 per vehicle during the quarter which is almost Rs 4000 higher than to Rs 13,426 in Q1FY14 owing to weak demand for diesel variants. Volume increased by 3% QoQ to 275586 units due to revival in export sales (grew 61% QoQ). EBITDA margin improved significantly by 650 bps YoY and 123 bps QoQ to 12.6%, benefited from lag impact of favorable currency movement in Q1FY14, softening in commodity prices and localization efforts. Though the company benefited from favorable USD/JPY in Q1FY14 on vendor imports due to lag effect, the company expects that adverse impact of unfavorable USD/JPY of Q2FY14 would be seen in Q3FY14. Net profit increased by 195% YoY and 6% QoQ to Rs. 6.7 bn which was above consensus of Rs 5.4 bn due to strong EBITDA margin. Management highlighted concerns over the demand environment which continues to remain weak and festive months of September-October have also remained muted so far. However the company expects some recovery in H2FY14 on the back of strong demand from the rural markets (rural sales grew by 24% YoY in Q2FY14). Valuation: We are observing that the entry level hatch-backs have begun to outperform other segments since April 2013 which is a key positive for Maruti’s market share. Rural demand commentary remains robust on the back of good monsoons and petrol car volumes are expected to improve towards the festive season and post harvest in rural areas. Further increase in export in non European countries is also positive for the company. At CMP of Rs 1513, the stock is trading at PE multiple of 14.85x FY15E EPS. We maintain BUY on the stock, with price target of Rs 1610 (reflecting ~16xFY15e earnings).

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