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Maruti Suzuki India Ltd Research Report - 21st Jan 2016

Automobile | Published on Oct 28th 2015


Results in line with estimates: Maruti Suzuki India Ltd (MSIL)s 2QFY2016 results have come in in line with our estimates. Its revenues grew 13% yoy to `13,934cr, in line with our expectations of `14,007cr. Volumes grew 10% yoy while the realization/vehicle grew 3% yoy on account of a better product mix. MSIL maintained its record high margins similar to 1QFY2016; margins rose sharply by 390bp yoy to 16.3%, and are in line with our estimate. A favorable currency movement (depreciation of Japanese Yen and Euro vis-a-vis the Indian Rupee) led to lower imported raw material costs. This, coupled with decline in discounts, boosted the operating margin. On the back of the robust operating performance, the net profit came in at `1,226cr, in line with our estimate of `1,248cr. Outlook and valuation: The passenger vehicle (PV) industry is well poised to post double-digit growth over the next two years, given the improved consumer sentiments, better economic outlook, and softer fuel prices. Further, new launches by MSIL, with it having recently introduced the premium hatch - Baleno and a new compact SUV, would enable it to gain market share, going ahead. Also, we believe MSIL would be able to sustain higher margins (we have built in ~17% margin levels in our estimates for FY2016/17) given the subdued commodity prices and favorable currency rates. Reduction in discounts due to improved industry outlook coupled with new product launches and benefits of operating leverage would also enable MSIL to sustain margins at elevated levels. We view MSIL as the best play on passenger vehicle demand recovery and expect 36% earnings CAGR over FY2015-2017. We have retained our earnings estimates given the inline results and maintain our Accumulate rating on the stock with a price target of `4,960 (based on a PE multiple of 22x FY2017 EPS).

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CMP 4,496
Target Price 4,960
Investment Period12 Months

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Shareholding Pattern (%)

Public & Others3.0
Grand Total100.0

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