Maruti Suzuki - Petrol model revival in-line; diesel de-growth sharper - ElaraCapital

- Maruti reported lower than expected sales growth at minus 14% YoY (we expected ~1% growth), led by dismal performance in UV (down 44% YoY), compact (down 29% YoY) and export (down 27% YoY) segments

- Mini segment continues to enjoy small but positive growth along expected, as dealers continue to report gradual demand recovery

- However, compact segment got hit higher (and sooner) than anticipated, with a second consecutive month of declines, this time by 29%

- Weakness in compact sales, which were largely diesel model driven in FY13, was an expected trend, as dealers complained about rising customer aversion to diesel driven cars on recent price hikes, however, the fall in sharper than anticipated and warrants a downward revision in estimates (expecting mid single digit volume growth in FY14E)

- Ertiga continued to be the negative territory on high base of last year and falling demand for UVs; unlike in FY13, this segment is not expected to be the growth driver for Maruti this fiscal

- Vans, even on a low base (hence forth the base is even lower) failed to post growth on lack of diesel option and general economic slowdown impacting CV sales

- Finally, exports continue to remain in negative zone, pulling overall volumes down 14% YoY. The YTD volume growth stands at a weak minus 9%

Our view: We maintain our belief that Maruti's volume trend is likely to remain modest over the coming months on the back of high base and weakening diesel car demand, though the reducing gap between petrol and diesel prices is likely to support mini segment growth in H2FY14E. Further, favorable exchange rates are likely to boost margins, while the stock is comfortably pricing the near term demand weakness. Maintain positive stance.

Source : Equity Bulls

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