After a mixed set of results, global brokerages see up to 18% upside in Maruti

Q1 EBITDA of Maruti rose 5.3 percent YoY to Rs 2330 crore while CIMB has maintained EPS forecasts with the help of higher other income offset somewhat by higher tax provisions and has maintained a hold rating with a roll-forward of the DCF based TP, as superior sales volume performance seems well captured  in the rich valuations. Normalised PAT rose 4.4 percent YoY to Rs 1560 crore, as higher other income helped to absorb the higher tax provision . Maruti in Q1  gained 400bp yoY and 300bp QoQ in market share to scale a high of 51 percent, with the help of a new Gujarat plant contributing 24,000 sales volume.

Brokerage: BofAML | Rating: Neutral | Target: Rs 7,800

GST transition has impacted Q1 but the underlying business remains intact. Profitability of Maruti to improve in H2 as new products scale up. The company's  Q1 results were below expectation with an EBITDA margin of 13.3 percent. However, adjusting for the one-time GST related expenses (80bps) and higher  employee costs (20bps) the miss isn’t very significant. Healthy waiting on new models, lower discounts and increased operating efficiencies at Suzuki Gujarat  should aid margins in H2. BofAML has maintained its FY18 EPS estimates, despite the Q1 miss. The price target remains unchanged at Rs 7,800 with the  research firm maintainingneutral rating given the limited upside from current level.

Brokerage: Morgan Stanley | Rating: Overweight | Target: Rs 8,784

Morgan Stanley believes that margin pressures of Maruti Suzuki will be transitory and has an overweight rating. The research firm feels that any weakness post weak Q1 results as a buying opportunity as margins should expand as the year progresses. Maruti posted top-line growth of 17 percent YoY and EBIT growth of only 4 percent YoY as EBIT margins contracted 116bp YoY and EBIT was 8 percent below Morgan Stanley's forecast. The research firm has cut EPS  estimates 4.7 percent for F2018 and 2.4 percent for F2019 and has cut earnings forecasts for 2018 and F2019, largely by lowering our EBITDA margin assumptions by 48bp and 19bp EBITDA margins for F2018 and F2019, respectively.

Brokerage: Nomura | Rating: Buy | Target: Rs 8,993

Nomura believes that outlook for Maruti Suzuki remains solid although Q1FY18 EBITDA margin at 13.3 percent was below estimates. The research firm has maintained a strong view with 13.5 percent volume CAGR over FY17-19F, backed by strong waiting periods for the Baleno, Brezza and Dzire and improved  demand on the back of Seventh Pay Commission benefits, lower car prices post GST, and a strong model cycle. It expects EBITDA margin to improve to 14.2 percent in FY18F and 14.7 percent in FY19F backed by operating leverage, improved mix and lower discounts. Maruti Suzuki remains Nomura's top pick in its coverage universe.

Brokerage: Credit Suisse | Rating: Neutral | Target: Rs 6,800

Maruti Suzuki is currently passing through one of the most benign competition phases and hence fundamentally things look very good. However, valuation at 30x FY19E (core EPS adj for cash) appears stretched. Credit Suisse has adjusted FY19E EPS by 3 percent and has rised the target price to Rs 6,800 on roll forward. Volumes are likely to be in line with available capacity while export volumes are to remain flattish, it said.

Brokerage: JP Morgan | Rating: Overweight | Target: Rs 8,100

JP Morgan believes that Maruti Suzuki’s volumes are to grow at 11 percent through F18/19 with upside risks given favorable local macros and falling rates. The research firm believes that demand environment for remainder of F18 should be solid with return of first time buyers/improved rural economy and further rate moderation and expects margins to bounce back in FY19 driven by stabilization of new capacity and some operating leverage.

Brokerage: Citi | Rating: Neutral | Target: Rs 6,500

While the near-term competitive outlook for Maruti Suzuki is fairly stable, valuations are very high at this juncture. EBITDA margins at 13.3 percent declined 150bps YoY, though adjusted EBITDA margins are at 13.6 percent. EBITDA at Rs 2330 crore rose 5 percent YoY but was 12 percent below Citi's estimates. Higher other income and marginally lower depreciation partially offset the miss at PBT level, which at Rs 2300 crore was 5 percent below estimates. Tax rate was higher due to change in taxation on MF gains and lower deduction allowed on R&D expenditure. PAT at Rs 1560 crore was 14 percent below estimates.

At 12:45 hrs Maruti Suzuki India was quoting at Rs 7,646.95, up Rs 54.65, or 0.72 percent. It has touched an intraday high of Rs 7,670.00 and an intraday low of Rs 7,587.55.