Maruti Suzuki – Rural demand holds strong - Religare

Rural supports demand: H1FY14 growth of 3% led by rural segment (31% of vols, +24% yoy), even as urban sales (-4.5%) reflected the broad macro slowdown. The company has 1250 outlets out of which 50% are in smaller towns/rural.

Market share: largely maintained in passenger car segment at 49-50% (FY14e vs. 50-51% in FY05), despite fierce competition. New SX4, hatchback and a smaller SUV (XA-Alpha) to be the new models in FY15 vs. the competition's Amaze (Honda), Grand i-10 (Hyundai) and Ecosport (Ford).

Margin uptick and growth: Enhanced focus on localisation and cost reduction to drive margin uptick in FY15 (FY15e of 11.6% vs. avg. 10.3% over FY10-14). Additional support from a weak JPY (PAT sensitivity at 2.5% on a +1% change in the JPY/INR). We expect Revenue/EBITDA/PAT CAGR of 11%/18%/18% over FY13-FY16, driven by margin expansion/ volume pickup after prolonged slump. Parent Suzuki (~56%) raising stake an additional trigger for the stock.

Valuations: At 15.4x FY15e the stock trades at an 8% discount to long-term (5yr) avg. of 16.8x.

Source : Equity Bulls

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