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Maruti Suzuki - Worst is behind; Maintain Buy - Centrum
Posted On : 2012-11-02 19:12:38( TIMEZONE : IST )
Maruti Suzuki's (MSIL) 2QFY13 operating results were better than our expectations with EBITDA margins at 6.1% compared to our estimate of 5.2%. Lower than expected realization drop (down 2% QoQ vs. est. 4%) led to higher revenue growth resulting in better than expected operating performance. We believe the worst is behind and the company should see significant recovery both in revenues and earnings in 2HFY13E. Recovery in revenues and earnings will be driven by higher contribution from the diesel portfolio. Based on management guidance, the residual growth in diesel portfolio in 2HFY13E is pegged at 40%. Lower discounts due to favorable product mix and recent price hike to offset discounts on petrol models will also aid the recovery. Moreover, discount on petrol model have already peaked. We continue to remain positive on the stock and maintain our Buy rating with a target price of Rs.1,566.
- Operating performance beats estimates: Revenues stood at Rs.8.3bn compared to our estimate of Rs.8.2bn. While domestic realization registered a drop of 3.6% QoQ, export realization registered a growth of 20% QoQ, restricting the drop to only 2% in blended realizations. Higher than expected revenues coupled with lower other expenditure led to better than expected operating performance. EBITDA margins for the quarter stood at 6.1% compared to our estimate of 5.2%. Adjusted PAT stood at Rs.2.27bn compared to our estimate of Rs.1.5bn.
- Management interaction: Key highlights: 1) Sales of diesel vehicles stood at 70k units in 2Q compared to 100k in 1Q. 2.) Export revenues stood at Rs.8.24bn (10% of revenues) and export realization for the quarter moved up by 20% 3.) Discount for the quarter, as indicated was higher by ~Rs.3,100 at Rs.14,750 compared to Rs.11,650 in 1Q. 4.) Overall order book on diesel car was more than 1,50,000 units and the newly launched Alto 800 has received bookings of more than 30,000 units. 5.) The management indicated that it there was strong demand during the festive period.
- Valuations and Recommendations: At the CMP of Rs1,394, the stock trades at 20.4x FY13E EPS of Rs68 and 14.0x FY14E EPS of Rs99. We continue to maintain Buy rating on the stock with a revised target price of Rs1,566.
