Edelweiss’ research report on Maruti Suzuki
Our recent interaction with the Maruti Suzuki (MSIL) management indicates that most margin tailwinds have been consumed-FY16 has seen a confluence of lower commodity prices, favorable currency and better product mix. Nexa dealership expansion is on track with target of 200 dealers by FY17 end. Medium-term capex will be towards developing railway sliding, warehouses for spares, stock yards and buying land; most of it will be one time in nature. Though management estimates FY17 industry volume growth at around 10%, it envisages it to be driven by only a few players. Maintain ‘HOLD’, but lower FY17E EPS 5% to INR 244 to factor in new currency assumption (Yen/INR at 1.75 vs 1.85 earlier) and lower volume growth in FY17 to 17% (19% earlier). Maintain ‘HOLD’ with a revised TP of INR 4,637 (earlier INR 4,909).
Nexa outlets to be doubled to 200 over next 12 months Nexa dealership network currently stands at 90 outlets and MSIL is planning to ramp it up to ~200 over the next 12 months. With regards to Nexa integration, management commented that non-Nexa dealers are provided incentives to pass on enquiries to the former. Our channel check indicates that integration of Nexa and non-Nexa dealers is not at the desired level currently.
Strong YEN/INR to weigh on margin Commodity prices have been favourable and these benefits will accrue with a lag of one quarter. However, the recent strength in the YEN will adversely impact margin going forward. Though MSIL has announced price hikes across its model range, these hikes are yet to be implemented.
Outlook and valuations: Fairly valued; maintain ‘HOLD’ While we estimate EPS CAGR of 41% over FY15-17, most of the leverage benefits will fructify in FY16. FY17 onwards, earnings will largely track volumes. Hence, success of new launches remains critical. The stock is currently trading at 17.5x 17E EPS, leaving risk-reward in balance. We maintain ‘HOLD/SP’ with TP of INR 4,637.
For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
Read More
