United States

Analyst Research Report Snapshot


Spark Capital: Maruti Suzuki 2QFY14 Results Review - Exports and the lag effect of indirect imports offset spike in discounts; Maintain Reduce.




Spark Capital Advisors(India) Private Limited


29 Oct 2013





Companies referenced:


Available for Immediate Download

Maruti Suzuki: Exports and the lag effect of indirect imports offset spike in discounts; Maintain Reduce. Revenues rose 26% yoy on a low base. Realizations were down 1.2% qoq driven as domestic realizations were under pressure due to higher discounts, offset by an increase in export realisations. Margins came in at 12.6% and PAT stood at Rs 670mn. We believe the elevated discounts and continued weakness in underlying demand and shift in mix towards entry level petrol cars remain the key negatives. Maintain Reduce. The impact of discounts on diesel cars led to a spike in weighted average discounts to Rs 17,500 per car during the quarter vs. Rs 13,400 in 1QFY13. Diesel sales for the quarter stood at 72,741 units for MSIL declining 4.2ppts as a proportion of domestic sales to 30.1% thus weakening the product mix. Management indicated that in addition to diesel car discounts which have pulled the weighted average higher, the discounting pressure across individual models also remains elevated. We believe discounts will be sticky in petrol cars until the market sees a broad based recovery. The negative impact of discounts was offset by better USDINR realizations and increasing share of exports. The company realized rates of ~Rs 61/$. The impact of rupee depreciation however is yet to be seen in indirect imports which flow after a quarter’s lag and also in direct imports which were partly hedged and also had inventories at lower rates. The royalty of 1QFY14 however had a restatement which impacted margins negatively by ~40bps. In addition, some cost reduction measures enabled a margin expansion of 120bps. We expect the negative impact of currency to be seen in the next quarter. Further, dollar linked commodity price inflation is likely to start impacting raw material costs going forward. We factor in margins of 11.4% and 11.5% respectively for FY14 and FY15. Management indicated that the company saw a 5% to 8% sales growth in the Onam and Navratra festive seasons and expects industry volumes to decline 3% to 5% in FY14 with Maruti outperforming the industry. Rural volumes (31% of sales) continued to outperform growth in urban markets. We expect a domestic volume decline of 2% and factor in a growth of 14% in FY15. Estimates and Valuation: We expect revenue CAGR of 7% from FY13-15 and 190bps margin expansion to drive an EBITDA CAGR of 17% in the same period. We expect PAT to be at Rs 32.4bn, value the stock at 13x FY15E EPS of Rs 107.1 at a TP of Rs 1,392, and maintain a Reduce rating on the stock. Other takeaways: (1) Royalty at 6% of sales (2) Export revenues at Rs 15.19bn of which Rs 13.80bn was from sale of vehicles and Rs 1.39bn was from the sale of kits.

Why buy analyst research?

  • Institutional quality research
  • Available for Immediate Download
  • Detailed company or industry insight
  • Print or save
  • 24 hour customer support
Return to previous page without adding this item to your cart.
Email Customer Support.

About Analyst Research

Analyst research reports are available for immediate download after purchase. You will have unlimited access to the report for 24 hours after purchase, to download, print or save it as many times as you wish. Analyst Research provided by Reuters does not constitute investment advice, and is not endorsed by Reuters Research. This information is protected by copyright and intellectual property laws. More information on Analyst Research.