Mar 04, 2013, 05.02 PM | Source: Moneycontrol.com
Prabhudas Lilladher is bullish on Maruti Suzuki India (MSIL) and has recommended buy rating on the stock with a target price of Rs 1715 in its February 28, 2013 research report.
, Prabhudas Lilladher |
"MSIL's stock has corrected ~17% in last 1 month mainly on account of technical reasons (stock being removed from the MSCI index) and demand moderating in the diesel segment. The correction, in our view, provides a buying opportunity to long-term investors. In our view, MSIL is the best play on recovery in the macroeconomic situation. Given the strong product portfolio of ‘Swift', ‘Dzire' and the success of ‘Ertiga', we maintain our long-term positive view on the stock and expect a strong recovery in FY15E (volume growth of 13.8%). We maintain MSIL as our top-pick in the Auto space with a TP of Rs1,715 based on 14.0x FY15 EPS (MSIL +SPIL) of Rs122. Due to a 26.7% potential upside from the current levels, we upgrade the stock to 'BUY' from 'Accumulate' earlier.
Tax on Royalty payment was increased to 25% from 10% in the budget. However, in case of MSIL this is not applicable as it comes under the purview of DTAA with Japan where the applicable tax rate stands at 10% on Royalty payment. Hence, there is no impact on MSIL.
MSIL's JPY denominated imported content (direct + indirect) stands at ~19% of net sales. With JPY depreciating against USD by almost 10% and INR being relatively stable against USD in last 3 months, MSIL is likely to benefit on the imported content of raw material. For FY14, we have assumed a cross-currency rate of INR/JPY at 0.61 v/s 0.66 in FY13. As a result, we estimate 60bps improvement in material cost/sales ratio in FY14E.
We have assumed a 10.3% and 13.8% volume growth in FY14E and FY15E, respectively. We expect the margins to improve by ~180bps over the next two years, mainly on account of currency hedging, operating leverage and better product mix. We maintain MSIL as our top-pick in Auto space with a TP of Rs 1,715 based on 14.0x FY15 EPS (MSIL +SPIL) of Rs122. Due to a 26.7% potential upside from the current levels, we upgrade the stock to 'BUY' from 'Accumulate' earlier," says Prabhudas Lilladher research report.
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