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MOSL: MARUTI SUZUKI (Buy) - Significantly above estimates led by favorable Fx - expect Fx reversal in 3QFY14




Motilal Oswal Securities Ltd.


29 Oct 2013





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Maruti Suzuki (MSIL IN, Mkt Cap USD7.4b, CMP INR1,513, Buy) Jinesh K Gandhi (Jinesh@MotilalOswal.com) / Chirag Jain (Chirag.Jain@MotilalOswal.com) Above est with EBITDA margin at 12.6%; upgrade FY14E EPS by 22% Current quarter’s performance is not comparable YoY due to merger of SPIL in 4QFY13. MSIL’s 2QFY14 performance was above estimates, with EBITDA margins of 12.6% (up 120bp QoQ, est 9.7%) driven by favorable forex. Led by higher-than-estimated EBITDA, PAT stood at INR6.7b (est. INR4.8b). Earnings call highlights RM cost fell 260bp QoQ led by 100bp favorable forex on vendors’ import (quarter lag), higher export revenue (INR depreciation) and low cost inventory of direct imports (timing mismatch, to reverse in 3Q). Diesel share stood at 30% (v/s 34% in 1Q). Average discounts increased sequentially by INR4,000 to INR17,500/unit in 2Q. Festive sales so far have risen by 5-8%; seasonally, 2H expected to be better by 10%. Rural grew by 24% during 1HFY14, contributing 31% to MSIL sales. JPY/USD direct and indirect exposure fully hedged for 3Q and partially hedged for direct exposure for 4Q. Royalty (payable in May-14) remains unhedged. USD/INR exposure hedged for 3Q. Import content to reduce 2-2.5% annually from 19.5% in Mar-13. Depending on component/technology, ~10-20% cost savings can be expected. Valuation and view We upgrade FY14E/FY15E EPS by 22%/7% to ~INR96/108 respectively to factor a) strong 2QFY14 performance, b) 2HFY14 fx hedges and c) benefit of cost saving initiatives. We assume volume growth of -1.5%/12.8%, EBITDA of 11.9%/11.7% and JPY/INR of 0.617/0.625 in FY14E/FY15E. The stock trades at 15.7x/14x FY14E/15E consol. EPS and 9.1x/8x FY14E/15E cash EPS. Maintain Buy with a revised target price of INR1,702 (~9x FY15E CEPS/16x FY15E con. EPS).

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