Views on Maruti Suzuki results - Angel Broking

Views of Mr. Yaresh Kothari (Research Analyst - Automobile, Angel broking) on Maruti Suzuki results.

MSIL results lower-than-estimates

MSIL 4QFY2014 Result Review (CMP: Rs 1,930/ TP: Under review/ Recommendation: Accumulate)

Maruti Suzuki's (MSIL) 4QFY2014 results were lower than our expectations mainly due to the operating margin pressures following compensation provided to dealers post excise duty cuts announced during the Interim Budget in February 2014. The financials however are not comparable yoy due to amalgamation of Suzuki Powertrain India (SPIL) in 4QFY2013. Meanwhile, the company has increased its dividend payout during the year to Rs 12/ share as against Rs 8/ share in FY2013.

The top-line recorded an in-line growth of 11.1% qoq to Rs 12,101cr driven largely by 12.7% qoq growth in volumes. Net average realization though declined 1.3% qoq as the company lowered its prices post the excise duty cuts announced during the Interim Budget. On the operating front, EBITDA margins surprised negatively, as it contracted 213bp sequentially to 10.3%, sharply lower than our expectations of 12%. The surprise was driven primarily due to compensation provided to the dealers to offset the impact of excise duty cuts which were passed on to the consumers. Additionally, employee expenses too increased significantly by 33.8% qoq during the quarter. However, lower sales promotion expenses and ongoing localization initiatives mitigated the impact on EBITDA margins to some extent. Led by lower-than-expected operating performance, net profit at Rs 800cr came in sharply below our expectations of Rs 907.

We maintain our positive view on the long-term volume growth potential of the domestic passenger car industry, driven by economic growth and low penetration levels in the country. We expect MSIL to be the primary beneficiary of this structural growth story given its strong brand positioning, expanding portfolio, ability to successfully launch new vehicles and extensive rural/semi-urban network. We expect the company's volume growth to revive going ahead led by the new launches and gradual recovery in demand after three years of weak performance that the industry has witnessed. At the CMP, the stock is trading at 14.4x FY2016E earnings. We maintain our Accumulate rating on the stock.

Source : Equity Bulls

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