Maruti Suzuki - 1QFY2013 Result Update - Angel Broking

Maruti Suzuki (MSIL) reported lower-than-expected performance for 1QFY2013 due to unfavorable exchange rate movement and sharp drop in other income (down 39% yoy and 62.2% sequentially) on account of deferral in booking treasury income. Unfavorable exchange rate movement led to 140bp yoy (110bp qoq) increase in royalty payments. We have lowered our FY2013E/2014E volume assumptions by ~4%/~2% to 1.21mn/1.34mn units, respectively, to factor in loss of production due to the lockout at Manesar plant. We have also cut our margin estimates by ~50bp to factor in margin pressures. While the extent of the damage to MSIL's market share and profitability due to the ongoing labor problem at Manesar will be an overhang on the stock in the near term, we expect MSIL to benefit from the likely revival in demand in 2HFY2013. We recommend an Accumulate rating on the stock.

Poor 1QFY2013 results: For 1QFY2013, MSIL's net sales grew by a strong 27.5% yoy to Rs.10,778cr, (11.3% ahead of our estimates) driven by 21.3% yoy increase in net average realization. Net average realization improved on account of price increases and superior product-mix (higher share of Swift, Dzire and Ertiga in total volumes and higher proportion of diesel cars). EBITDA margin declined 230bp yoy (stable qoq) to 7.3% primarily due to 240bp increase in other expenditure. Other expenditure jumped 57.3% yoy due to foreign exchange impact on royalty payments and 100bp increase in other manufacturing expenses led by increase in power & fuel costs and forex losses. On the positive side, rawmaterial cost as a percentage of sales declined 20bp yoy (180bp qoq) due to price increases and cost reduction initiatives which negated the impact of yen appreciation (24.0% yoy and 7.0% qoq). As a result, operating profit declined 3.0% yoy to Rs.786cr. However, net profit was down sharply by 22.8% yoy (33.8% qoq) led by lower other income and significant increase in interest expense.

Outlook and valuation: At Rs.1,111, MSIL is trading at 12.7x its FY2014E earnings. We recommend an Accumulate rating on the stock with a target price of Rs.1,227.

Source : Equity Bulls

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