Hold Maruti Suzuki; target of Rs 1448: Nirmal Bang

“Maruti’s result was mixed with top-line marginally better than expected and margins falling short of expectations. Management's tone has changed from muted outlook last quarter to 'cautiously optimistic' outlook which is driven by rate cuts and new model launches.”

“Net sales increased 49.9% QoQ but declined 16.5% YoY to Rs 11,486 crs in Q4FY12. The company’s production returned to normal levels after being disrupted in Q3FY12. Volumes were up 50.4% QoQ and 4.9% YoY to 360,334 units. Net realizations grew 11% YoY (down 11% QoQ). Although blended realizations look lower sequentially, the management stated that domestic realizations were up ~3% QoQ (driven by better mix). EBITDA declined 15.0% YoY to Rs 858 crs in Q4FY12 primarily due to higher raw material expenses and larger discounts offered to push petrol sales. Consequently, Maruti’s EBITDA margins stood at 7.47% (down 276bps YoY; up 203bps QoQ). The company reported higher other income (up 148% YoY; 85% QoQ) mainly due to maturity of some FMPs during the quarter (to the tune of Rs 200 crs).   PAT was above estimates aided by higher other income and lower tax rate.”

“We expect margins to improve from FY12 levels. Volumes will be driven by strong response to Ertiga, new Swift, new Dzire and the ramp up in diesel capacity. Driven by a better product mix (higher shares of lower discount diesel variants) and benefits on the currency front, we believe that Maruti will report strong performance in FY13E. Moreover, consumer sentiment is expected to improve with reduction in interest rates. However, the stock has seen a strong run-up in the last one quarter and we believe that the positives have been factored in the stock price. In our view, upside from these levels will be limited for near term. However, we do suggest buying the stock on decline.  At CMP of Rs 1,369 Maruti is trading at 14.66x FY13E EPS of Rs 93.4. We recommend to HOLD the stock with a target price of Rs 1,448 per share and recommend to buy the stock on decline. Our long term outlook continues to remain positive,” says Nirmal Bang research report.

Non-Institutions holding more than 90% in Indian cos   

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