Maintain Buy on Maruti Suzuki - Motilal Oswal

MARUTI SUZUKI: Toyota Etios sedan aggressively priced and positioned against Swift Dzire; No diesel variant limits risk to Maruti volumes; Maintain Buy

- Toyota has aggressively priced Etios sedan version at Rs496k, positioning it directly against Maruti's Swift Dzire which is priced at Rs488k.

- Etios is launched only in petrol and it doesn't have any plans to launch diesel variant soon, plans to locally produce engines and transmissions by 3QCY12.

- While Etios appears to be bigger, more powerful and more comfortable car at similar price of Dzire, detailed analysis indicate that it offers less equipment.

- In base version, Etios doesn't offer power steering, which is standard across trim level in Dzire. In mid-level, it doesn't offer company fitted music system.

- Maruti's Swift & Dzire does monthly volumes of ~20,000 total, of which ~65-70% are diesel variant sales. As a result, we estimate only ~7% portfolio at risk.

- While Maruti lost market share since 3QFY10 due to capacity constraint, we believe capacity augmentation will drive recovery of lost market share. Also, we estimate gradual improvement in EBITDA margins over 1HFY11. However, adverse forex movement remains a concern, as total exposure remains unhedged. The stock trades at 9.7x FY12 Cash EPS. Maintain Buy with target of Rs1,744 (~12x FY12 Cash EPS; Median Cash P/E since listing).

Source : Equity Bulls

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