Hold Maruti Suzuki India – Bang On Target - PINC Result Review

Bang On Target

Maruti Suzuki's (MSIL) Q2FY11 results were inline with our estimates as the company reported a 5% growth in net profits to Rs6bn. On an impressive volume growth of 27.4% net sales were up 26.8% to Rs91bn. Increase in raw material costs and hike in royalty payments led to a 220bps contraction in margins to 10.5%.

Outlook: In wake of the increased capacity we have marginally raised our volume estimates for FY11 and FY12 to 1.24mn and 1.40mn units respectively. To account for the raw material cost pressures faced we have reduced margin estimates by ~20bps each. As a result of these mutually counter effective changes, our earnings estimate for FY11 and FY12 remains unchanged at Rs80.8 and Rs99.1 respectively.

VALUATIONS AND RECOMMENDATION

The stock is currently trading at 15.6x its FY12 earnings estimate. We reiterate a 'HOLD' recommendation with a target price of Rs1,586 discounting FY12E earnings 16x.

Source : Equity Bulls

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