Accumulate Maruti Suzuki; target of Rs 1460: PLilladher

“Maruti Suzuki India, top-line grew by 16.2% YoY at Rs11.7bn (PLe: Rs11.9bn) led by 11.3% YoY increase in realization/vehicle and 4.4% YoY increase in volumes. Average realization/vehicle was disappointing, with only 1.4% QoQ growth despite product mix skewed towards Diesel (~29% of volumes). This is on account of discounts on petrol vehicles which impacted realisations by 0.5%. MSIL’s EBITDA was impacted by Rs2bn on account of vendors’ compensation (Yen denominated indirect imports) for Q3FY12 (impacts with a lag of a quarter) in Q4FY12. This restricted the expansion in EBITDA margins to 150bps sequentially at 7.3%. Adjusted for the same, the EBITDA margins could have been ~9.0%. Reported EBITDA declined by 10.5% YoY at Rs8.6bn (PLe: Rs9.3bn). On account of higher other income (up 147.6% YoY) on account capital gains on FMPs, the decline in PAT was restricted to 3% which was ahead of PLe of Rs5.9bn.”

“MSIL has hedged both its direct + indirect Yen exposure to the tune of 40% of FY13E requirement. Our sense is that the Yen has been hedged upwards of ¥80/$ (Q4FY12 average was ¥78/$). As a result, from Q1FY12 onwards, the lag effect of vendors’ import (Rs2bn for Q4FY12) would not be recurring in nature. This, in our view, can easily add around ~100-120bps to the EBITDA margins in FY13E.”

“We estimate a 16% and 10% volume growth for MSIL in FY13E and FY14E, respectively. We expect the margins to improve by ~200bps over the next two years, mainly on account of currency hedging, operating leverage and better product mix. Given the sharp run-up in the stock by ~30% since our upgrade in September 2011, the valuations at 16.4x FY13E EPS and 13.8x FY14E EPS seems to have factored in majority of positives. However, on account of margin as well as volume improvement in sight, we maintain our ‘Accumulate’ rating on the stock with a 1-year target price of Rs 1460/share,” says Prabhudas Lilladher research report.   

Non-Institutions holding more than 90% in Indian cos

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