Maruti Suzuki - 4QFY2012 Result Update - Angel Broking

Maruti Suzuki's (MSIL) 4QFY2012 results significantly benefitted from higher other income due to capital gains arising from the maturity of FMP investments. While total volumes improved, driven by restoration of operations at Manesar plant and higher diesel engine availability, EBITDA margin pressures continued on account of higher discounts and adverse foreign exchange movement. We maintain our Accumulate rating on the stock.

Higher other income boosts bottom line: MSIL's top line registered strong growth of 17.2% yoy (51.7% qoq on revival in volumes) to Rs.11,727cr, driven largely on account of an 11.7% yoy increase in net average realization (due to superior product mix and price hikes). Total volumes for the quarter grew by 4.9% yoy, driven by strong momentum for the newly launched Swift and Dzire. Sequentially, volumes jumped by 50.4%, as production at Manesar plant was restored to normal levels and due to higher availability of diesel engines. EBITDA margin expanded by 210bp qoq (down 281bp yoy) to 7.3%, in-line with our estimates of 7%, driven by higher net average realizations and operating leverage. Further, MTM reversal of Rs.50cr on royalty payout benefitted the company's operating performance. However, Rs.200cr additional outgo towards vendor compensation on account of adverse JPY/INR rates in 3QFY2012 coupled with higher employee expenses led by higher variable pay restricted further margin expansion. Led by higher other income (up 155.2% yoy to Rs.297cr) due to capital gains on FMP investments, the decline in net profit was restricted to 3% yoy.

Outlook and valuation: We broadly retain our volume estimates at ~15% and ~13% for MSIL in FY2013E and FY2014E, respectively. We expect margins to improve by ~250bp over the next two years, mainly on account of currency hedging, operating leverage and better product mix. At Rs.1,332, the stock is trading at 13.2x its FY2014E earnings. We maintain our Accumulate rating on the stock with a target price of Rs.1,510.

Source : Equity Bulls

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