Maruti Suzuki - Q4FY13 Result Review - Angel Broking

For 4QFY2013, Maruti Suzuki (MSIL) reported extremely strong results (pre SPIL merger), beating ours as well as consensus estimates by a significant margin. The top-line registered a healthy growth of 9.1% yoy (14.2% qoq) to Rs. 12,793cr which was broadly in-line with our estimates. The top-line performance was primarily driven by a strong 14.7% yoy (flat qoq) growth in net average realization led by better product-mix (higher share of Swift, Dzire and Ertiga), price hikes and lower levels of discounts (at Rs. 10,500/unit vs Rs. 12,100/unit in 3QFY2013). The volumes however, registered a decline of 4.6% yoy led by the weak demand for entry segment cars (down 13.7% yoy) and slowdown in exports (down 10.5% yoy). The export revenue for the quarter stood at Rs. 1,530cr (strong growth of 23% yoy and 15.9% qoq) driven by a robust net average realization growth of 37.4% yoy (8.2% qoq). Nevertheless, the bottom-line at Rs. 1,148cr (79.3% yoy) was substantially ahead of our expectations driven by strong expansion in EBITDA margins (up 306bp yoy and 243bp qoq to 10.4%), higher other income (up 120% qoq) and lower tax rate (17.1% vs. 25.8% in 3QFY2013). MSIL's EBITDA margin registered a sharp expansion of 306bp yoy to 10.4%, which was significantly ahead of our estimates of 8.6%. The EBITDA margin expansion was led by better product-mix, price hikes, lower average discounts and favorable currency movement (+ve impact of ~120bp qoq). The raw-material cost as a percentage of sales declined 310bp yoy to 76.5%, led largely by superior product-mix (towards Swift, Dzire and Ertiga), positive impact of Yen depreciation and ongoing cost reduction initiatives. Due to the favorable movement in exchange rate, the royalty outgo during the quarter stood at 4.8% (down 30bp yoy and 80bp qoq). During the quarter, MSIL merged its engine manufacturing subsidiary Suzuki Power Train India (SPIL) with itself through a share swap ratio of 1:70 as announced earlier.

Going ahead, the ongoing weakness in Yen (down ~10% yoy against INR in YTDCY2013) which partially benefited EBITDA margins in 4QFY2013 is expected to enhance profitability in FY2014 as the favorable currency impact on indirect exposure is expected to reflect completely in FY2014. We expect EBITDA margins to improve 150bp in FY2014 driven by favorable product-mix and currency movement, lower discounts, ongoing cost reduction initiatives and also on account of the SPIL merger. As a result, we expect MSIL to register strong earnings CAGR of ~25% over FY2013-15. At Rs. 1,673, MSIL is trading at 13.6x FY2015E earnings (including the impact of SPIL merger). We recommend Accumulate rating on the stock with a target price of Rs. 1,847, valuing the stock at 15x FY2015 earnings.

Source : Equity Bulls

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