Buy Maruti Suzuki; target of Rs 1459: Nirmal Bang

“We expect Maruti Suzuki India’s (MSIL) earnings and volumes to grow 19%/16% in FY13 and FY14, respectively, following the successful launch of three car models - Swift, Dzire and Ertiga. The company has also shown strong pricing power (price hikes in November 2011, January and May 2012), leading to strong growth in realisation, which coupled with higher operating leverage, would drive earnings in FY13 and FY14. We value the stock at 13.5x FY14E earnings of Rs108 to arrive at a target price of Rs1,459, up 18% from the current market price.”

“We expect MSIL’s volumes to show a CAGR of 17% over FY12-14E, driven by likely 19% growth in FY13E, (largely because of higher diesel car sales and a low base in FY12), while in FY14 we expect the company to report a volume of 1.55mn units, up 16% YoY, on the back of additional diesel engine sourcing and favourable macro-economic environment helped by lower Interest rates. Upside risk to our volume assumption for FY14 is the likely launch of a small car by the end of 3QFY13. With the expectation of a sharp improvement in volumes, we expect strong operating leverage for the company in FY13 and FY14. We estimate a 120bps YoY improvement in EBITDA margin in FY13, largely driven by better operating leverage, which will consequently drive earnings CAGR of 38% over FY12-14E.”

“We believe MSIL is one of the strong bets for FY14 as the worst seems to be over for the company, in volume terms. Labour problems seem to have cooled off, while currency hedging at favourable rates would restrict forex volatility. The only threat to MSIL’s volumes remains any sharp hike in petrol prices. With the macro-economic situation expected to be brighter in FY14, we believe MSIL is one of the best bets as its risk-reward ratio remains favourable. We assign a Buy rating to the stock with a target price of Rs1,459 (13.5x FY14E earnings),” says Nirmal Bang research report.

Public holding more than 90% in Indian cos   

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