Maruti Suzuki India - "Turning bright" - LKP Research

Strong set of numbers in Q3 FY 13

In Q3 FY13, Maruti's volumes jumped by 25.9%yoy and 30.8% qoq, while net realizations grew by 15% yoy and 3.1% qoq as the company sold out a good proportion of diesel vehicles by getting back to normalcy in production post the labour unrest in previous quarter despite petrol discounts remaining high. Net sales grew by 43% yoy and 36% qoq as both volumes as well as realizations were healthy. There was a good fall in all the major costs in Q3 both on qoq as well as yoy basis. RM cost to sales declined to 80.2% of sales v/s 81.9% qoq and 81.5% yoy. This was due to favorableYen movement as the Japanese currency depreciated against Indian rupee by ~7%. Employee costs to sales also moved down to 2.2% from 2.9% qoq and 2.7% yoy.Other expenses also moved down to 11.7% from 13.2% yoy and 11.8% qoq as royalty payments fell in line with Yen. On the back of these cost reductions, EBITDA margins in the quarter jumped up to 8.1% from 6.3% qoq and 5.4% qoq. Depreciation expenses went up by 20% yoy as Manesar Phase B is ramping up production, but as a % of sales was down to 3.2% from 4.3% qoq and 3.9% yoy. Interest expenses increased by 165% yoy as the company is possibly funding capex at its Manesar plant through some debt raised. Net profits grew by 143% yoy and 120% qoq as topline as well as operating parameters posted a stellar performance.

Outlook and valuation

With almost a year of underperformance, MSIL's Q3 numbers have shown signs of recovery. Volumes have increased on domestic front and exports are improving month on month. With new launches coming up, such as an SUV, the company is trying to establish itself in the SUV segment as well. On margin front as well, we see a better product mix, depreciating Yen, reducing discounts, and increase in indigenization resulting in lower sensitivity with currency fluctuations to assist margin performance. Since the Q3 results were in line with our strong expectations, we are maintaining our FY 13 estimates, while increasing our FY14 earnings estimates by 18% and raise our target from Rs1300 to Rs 1733. With the recent rally in the stock, we believe upside remains slightly muted as valuations look slightly stretched. Hence, we upgrade the stock from UNDERPERFORMER to NEUTRAL.

Source : Equity Bulls

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