Accumulate Maruti Suzuki - Prabhudas Lilladher

Festive demand encouraging: Manesar has ramped up to full production of 1,700 cars/day which is likely to increase to 2,000/day by end-November. Given the strong order book for 'Swift' and the 'Dzire' (1lac units), the timely ramp-up will help MSIL to cater to the festive season demand which has just began. The new 800cc 'Alto' has received a booking of ~30,000 units in the first month of its launch. Royalty expenses are lower by 60bps QoQ on account of revision of provision in Q1FY13 to the tune of Rs380m. Other income includes a MTM gain to the tune of Rs430m as against a MTM loss of Rs260m in Q2FY12. Effective tax rate is likely to be 20% for FY13E.

H2FY13E profit likely to grow by ~64%: Led by 12.5% YoY growth in H2FY13E volumes (~33.6% YoY growth in Q3FY13E volumes), the profitability of MSIL is likely to improve by 64% YoY in H2FY13E. In our view, operating leverage, coupled with superior product mix, would lead to EBITDA margins of 7.5-8% in H2FY13E. As a result, H2FY13E profit would be Rs13.0bn, thereby, accounting for ~68% of full year profit in FY13E.

Reiterate our positive stance on MSIL and retain it as our top-pick in Autos: We reiterate that MSIL is the best play on the recovery in the macroeconomic situation and lower interest rates. For FY14E, we see strong recovery for the petrol car demand as well as strong growth for the diesel vehicles (lower base of FY13E). We have assumed a 6.0% and 20.0% volume growth in FY13E and FY14E, respectively. We expect the margins to improve by ~190bps over the next two years, mainly on account of currency hedging, operating leverage and better product mix. We maintain MSIL as top-pick in Auto space with a TP of Rs1,596 based on 14.5x FY14E consolidated EPS (MSIL +SPIL) of Rs110.

Source : Equity Bulls

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