Warning! Deutsche Bank says Maruti may skid 21% on yen woes

Moneycontrol Bureau Deutsche Bank warns that rise in Japanese currency may spell bad news for Maruti and is worried about its impact of yen on the auto major's earnings and valuation for some time now. However, recent price hike and market share gains seems to be favouring Maruti. The brokerage firm has a hold rating with a target price of Rs 4350 per share. "In a bull case scenario, if we assume a further 3 percent ASP increase and yen of 110, this results in a FY18 earnings per share (EPS) of Rs 308 and target price of Rs 5550 implying 13 percent upside. In a bear case, our current ASP and a yen of 90 would result in FY18 EPS of Rs 215 and a target price of Rs 3866 (21 percent downside),” it says in a note. Cautious Deutsche Bank has a FY16-19 CAGR target of 5 percent. It feels that while FY17 should see upside from new models, consensus expectations of a recovery during FY18/19 will have to be accompanied by a rebound in entry-level segments. The yen briefly fell below 100 against the dollar on August 16 to hit its lowest since June 24, after Brexit. Last December, the yen was near 120 against the dollar.It says every 1 percent appreciation in the yen/rupee results in a 1.2 percent reduction in Maruti’s EPS though its net exposure to yen has fallen over the last decade. Deutsche Bank sees yen appreciation resulting in EBITDA margins declining from 15.7 percent in FY16 to 13.5 percent in FY19E, with an EBITDA CAGR of 12 percent. Maruti imports components from Japan and pays royalty denominated in Japanese to Suzuki. Net yen exposure for Maruti at 10 percent of sales with 40 percent of indirect exposure (11 percent of sales) in yen along with royalty (6.5 percent) and direct exposure (5 percent) is offset by Baleno exports (5 percent of sales) billed entirely in yen.Posted by Nasrin SultanaFollow @NasrinzStory