Maruti Suzuki - Q4FY13 Results: Solid beat; outlook positive - PhillipCapital

MSIL delivered an operating performance well ahead of expectations with a solid beat on EBITDA margins. The results clearly benefitted from the yen; but more importantly, the complete impact of the currency will continue to flow through in the coming quarters. In addition, the declining differential between diesel/petrol may benefit the company. We make meaningful upgrades to our earnings to account for the positive currency movements and raise our target price to Rs1980. Maintain BUY.

Q4FY13 beats estimates: While the revenues at Rs125bn (+9% Y-o-Y) were inline expectations, the EBITDA margins (10.4% versus PC est: 9.3%) ensured that operational results registered a 12% beat. Higher other income and a lower tax rate contributed to a PAT of Rs11.47bn (+80% Y-oY, PC est: Rs7.3bn).

EBITDA margins in double digits: During the quarter, the EBITDA margins rose to 10.4% (+240 bps Q-o-Q). While the yen movement was clearly the driver for the improvement the company also benefitted from a better product mix (higher proportion of diesel vehicles in the mix). This partially contributed towards lower discounts during the quarter.

Localisation rising, Yen benefits yet to fully flow through. For the quarter, the company had hedged its Yen/USD exposure at a rate of 90. It currently has taken hedges for the 30% of the FY14 exposure at a rate of 95. With increased hedges at better rates, margins will continue to benefit going forward.

Another significant development was the rise in the localisation levels - during the year imports (direct and indirect) as a % declined from ~26% to ~19.5%. While half the decline can be attributed to the yen depreciation, the other half is the result of the conscious management policy. Despite the yen depreciation, the cost benefits of localisation are still substantial.

Management outlook

Demand: The demand environment continues to remain weak with pressure being felt even on diesel vehicles. There is very little improvement in customer sentiment - the reducing petrol/diesel gap has not yet shifted demand towards petrol vehicles. Despite competition, the company expects to hold marketshare at the current levels.

Margins: The management stated that (a) marketing costs (discounts, brand building excercises) are largely driven by the competitive scenario rather than by currency movements (b) discounts from competitors are likely to have peaked. When taken together, it seems that the company would likely retain a large proportion of the yen improvement in the coming quarters.

Meaningfully raise estimates; upgrade to BUY: We raise our EPS estimates for FY13/14 by 10% each respectively to account for the better margin outlook and merger benefit. We assign a multiple of 16.5XFY14 earnings (inline with historical multiples to arrive at a target price of Rs1980 (Rs 1800 previously). Maintain BUY.

Source : Equity Bulls

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