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Maruti Suzuki Limited - Q2FY14 Result Update - "ACCUMULATE"




Kisan Ratilal Choksey Shares and Securities Private Limited


01 Nov 2013





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Maruti Suzuki Limited - Q2FY14 Result Update CMP: Rs 1,605 Target Price: Rs 1,730 Recommendation: ACCUMULATE “Margin booster pre-festive season” Maruti reported Topline growth of 26% y-o-y and a marginal growth of 2.3% q-o-q to Rs.10,468 crs, a result of strong volume growth and better realisation. Y-o-Y growth was on account of low base due to strike at Manesar plant last year. EBITDA margin improved drastically on by 650 bps y-o-y and by 123bps q-o-q to 12.6%. Net profit margin was 6.4% up by 366 bps y-o-y and flat on sequential basis (up by 23bps). Better Realizations boasted Revenue: MSIL reported Net Sales of Rs.10468crs which is up by 26% y-o-y and by 2.3% on q-o-q basis. Growth in sales was on the back of good volume sales up by 19.6% y-o-y and by 3.4% on q-o-q basis. The company sold total 275,586 vehicles for Q2FY14 out of which export was 34,024 vehicles up by 66.6% y-o-y. Moreover, favorable exchange rate resulted into better realization rate (up by 5.4% y-o-y) for this quarter which pushed up the Revenue for the company. Sequentially realisation was marginally down by 1.1% mainly on the account of rupee being stabilized this quarter from Q1. However, Y-o-Y volume growth is low base effect due to labor unrest at Manesar plant last year. Surprise on Operating Margins: Strong volume growth, favorable exchange rate with improved realisation and cost saving initiatives of the company resulted into operating margin expansion for the quarter. EBITDA grew by 159.8% y-o-y and by 13.3% q-o-q to Rs.1321crs mainly on account of significant decrease in raw material cost and higher localization. Company surprised with EBITDA margin expansion by 650bps y-o-y and by 123bps q-o-q to 12.6%. This was mainly on account of higher localization and amalgamation with SPIL helped the company reduce the cost of engines for the company and drastic reduction in raw material cost (down by 474bps y-o-y & by 128bps q-o-q). Spurt in Profits by 3 times on Y-o-Y basis: Net profit increased by 3 times y-o-y to Rs.670crs from Rs.227crs on the back of lower base and overall improvement on the operating side. On q-o-q basis PAT was up by 6.1% due to various initiatives taken by the company. Margins were seen at 6.4% up by 366bps y-o-y and flat i.e. up by 23bps on q-o-q basis. Valuations & Views: Maruti is making constant efforts of cost reduction, increasing localization, innovation & de-risking from foreign exchange fluctuations. The Company benefitted from Yen depreciation but uncertainty of Yen will be continuing in 2014-2015. With the additional capacity expansion taken by the company at Manesar and Gurgaon and a strong demand from exports and revival in domestic markets in the hope of better festive season coupled with economy growth, outlook for Maruti remains positive. At the CMP of Rs.1605, Maruti Suzuki is trading at 16.1x its FY14E EPS of Rs.99.9 and at 13.9x its FY15E EPS of Rs.115.3. With the target price at Rs.1730 using target multiple of 15x FY15E, we recommend “ACCUMULATE” on the stock with a potential upside of 8%.

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