Maruti Suzuki - 1QFY2014 Result Update - Angel Broking

Favorable forex and SPIL merger drives performance: For 1QFY2014, Maruti Suzuki (MSIL) reported strong results on the operating front, which was in-line with our estimates; however, net profit was slightly lower-than-expected due to higher tax rate (at 25.3% as against expectation of 21%). The quarterly results are not comparable on a yoy as well as sequential basis as 1QFY2014 and 4QFY2013 results reflect the impact of the consolidation of Suzuki Power Train India (SPIL) operations. The top-line for the quarter declined 5% yoy to Rs.10,237cr and was inline with our estimate of Rs.10,284cr. The performance was aided by a strong 5.4% yoy growth in net average realization driven by a better product-mix and price increases which although were partially offset by higher discounts (up ~15% yoy). Volumes however posted a decline of 10% yoy due to demand slowdown in the domestic (down 6.8% yoy) as well as export (down 35.4% yoy) markets. On the operating front, the EBITDA margin stood at 11.4% (significant expansion of 410bp yoy), in-line with our estimate, largely led by favorable impact of forex movement and also supported by the ongoing cost reduction initiatives and redistribution of expenses owing to the SPIL merger. Net profit surged 49% yoy to Rs.632cr aided by strong operating performance and also due to higher other income (up 81.9% yoy). However, a higher tax-rate and increase in depreciation expense (up 41.3% yoy) due to SPIL merger restricted bottom-line growth.

Outlook and valuation: While rural sales for the company continue to grow at a robust pace (up ~19% yoy), urban sales witnessed a high single digit decline during 1QFY2014. The Management stated that the demand for diesel vehicles too has turned weak and expects average discounts to inch upwards in 2QFY2014. We revise our FY2014 volume estimates downwards to ~2% from ~7% earlier to factor in the weak demand environment that the industry is currently facing. Nonetheless, we retain our EBITDA margin estimates and expect an expansion of 150bp in FY2014, driven by favorable currency movement, easing of commodity cost pressures, ongoing cost reduction initiatives and also on account of the SPIL merger. We increase our tax-rate assumptions to 24% from 21% earlier as guided by the Management. Consequently, we revise downwards our earnings estimates by 11.3%/9.5% for FY2014/15 respectively. We expect MSIL to register a strong earnings CAGR of ~18% over FY2013-15. We maintain our Buy rating on the stock with a target price of Rs.1,648.

Source : Equity Bulls

Keywords