Maruti Suzuki (Q1 FY15)

India Infoline News Service | Mumbai |

During Q1 FY15, net sales rose 11.1% yoy which was lower than our expected increase of 12.6%.

CMP Rs2,524, Target Rs2,950, Upside 16.9% 
  • Net sales surge 11.1% yoy owing to 12.6% yoy jump in volumes. This was offset by 1.6% yoy drop in realizations owing to adverse product mix whereby contribution of entry segment increased significantly

  • OPM at 11.7% was better than our expectations of 11.3% which represented a growth of 137bps qoq and 29bps yoy

  • PAT at Rs7.6bn was better than our estimates of Rs6.8bn owing to higher than estimated OPM and substantially higher other income

  • Volumes are expected to recover from H2 FY15 and pick further strength in FY16, margins are expected to strengthen with higher volumes and rising localization 

  • We maintain our BUY rating with a 9-month target of Rs2,950

Result table
(Rs m) Q1 FY15 Q1 FY14 % yoy Q4 FY14 % qoq
Volumes 299,894 266,434 12.6 324,870 (7.7)
Net Realisation (Rs/unit) 369,247 375,144 (1.6) 363,780 1.5
Net sales 113,696 102,373 11.1 121,014 (6.0)
Material costs (75,541) (68,064) 11.0 (82,266) (8.2)
Purchases (6,303) (5,641) 11.7 (6,516) (3.3)
Personnel costs (3,535) (2,951) 19.8 (4,010) (11.8)
Other overheads (15,036) (14,056) 7.0 (15,746) (4.5)
Operating profit 13,282 11,662 13.9 12,475 6.5
OPM (%) 11.7 11.4 29bps 10.3 137bps
Depreciation (5,836) (4,802) 21.6 (5,637) 3.5
Interest (386) (442) (12.8) (434) (11.2)
Other income 2,965 2,043 45.1 4,066 (27.1)
PBT 10,025 8,461 18.5 10,470 (4.3)
Tax (2,403) (2,145) 12.0 (2,470) (2.7)
Effective tax rate (%) 24.0 25.3 - 23.6 -
PAT 7,623 6,316 20.7 8,001 (4.7)
PAT margin (%) 6.7 6.2 53bps 6.6 9bps
Ann. EPS (Rs) 100.9 83.6 20.7 105.9 (4.7)
Source: Company, India Infoline Research

Net sales tad lower than expectations

During Q1 FY15, net sales rose 11.1% yoy which was lower than our expected increase of 12.6%. While volumes were higher by 12.6% yoy, realizations declined by 1.6% yoy. Domestic volumes grew by 10.3% yoy whereas exports registered a robust growth of 38.7% albeit on a low base. On a qoq basis, while domestic volumes were lower by 9.4%, export volumes were higher by 11.3% leading to a total volume decline of 7.7%. Realizations on the other hand saw a 1.5% sequential increase. Rural markets continued to fare much better with 26% growth in Q1 FY15 driven by strong disposable income owing to higher MSPs and employee guarantee scheme of the government. However, urban markets too have started recovering and the company reported a growth of 12% in the month of June 2014. Realizations have been weak owing to an unfavorable product mix and rising discount levels. The discounts during the quarter came in higher on sequential basis at Rs21,000 per car.

Total volume breakup marketwise
Volumes Contribution (%)
Q1 FY15 Q1 FY14 yoy (%) Q1 FY15 Q1 FY14
Domestic 270,643 245,346 10.3 90.2 92.1
Exports 29,251 21,088 38.7 9.8 7.9
Total 299,894 266,434 12.6 100.0 100.0
Source: Company, India Infoline Research

OPM better than expectations

During Q1 FY15, OPM for MSIL came in 11.7% a rise of 29bps yoy and 137bps qoq. Margins were better than our expectations of 11.3%. Margin improvement on a yoy basis was led by benefits of operating leverage, cost reduction measures implemented by the company and increase in localization levels. On a yoy basis, while gross margins were flat, benefits of operating leverage resulted in 50bps reduction in overheads as a percentage of sales. On a sequential basis though, gross margins improved by 138bps due to the dealer compensation of Rs1.4bn paid during Q4 FY14 the quarter for the impact of excise duty cut on the inventory. Staff costs as a percentage of net sales were lower by 20bps qoq.

Other income spurs up PAT growth

The company reported a PAT of Rs7.6bn which was higher than our expectations. The outperformance was owing to higher than expected operating profit. Furthermore, other income was higher than estimated due to capital gains on FMPs matured during the quarter. Depreciation expenses were higher as Manesar III unit and new diesel engine capacity commenced operations and also due to the new rates applied as per the companies act. Tax rate at 24% was in line with our expectations.

Cost analysis
Q1 FY15 Q1 FY14 bps yoy Q4 FY14 bps qoq
Material costs 66.4 66.5 (5) 68.0 (154)
Purchases 5.5 5.5 3 5.4 16
Personnel Costs 3.1 2.9 23 3.3 (20)
Other overheads 13.2 13.7 (50) 13.0 21
Total costs 88.3 88.6 (29) 89.7 (137)
Source: Company, India Infoline Research

Key takeaways from the conference call
  • With improvement in the consumer sentiment, first time buyers have returned to the market which has resulted in a stronger growth for the mini segment. Also, enquiries have gone up by more than 10%. Retail growth was at 12% in Q1 FY15

  • With diesel prices continuing to rise contribution of diesel cars has declined at the industry level declined from 54% Q1 FY14 to 50% in Q1 FY15

  • MSIL has gained market share in the passenger cars from 40.4% in Q1 FY14 to 44% in Q1 FY15. Gains have been mainly in the rural markets while it has seen marginal gains in the urban market

  • The company has guided for a cautiously optimistic outlook for domestic market where it sees a double digit growth while it expects a flat export volume trajectory

  • 40% of total demand of Celerio is for AMT variant and the model currently has a waiting period of 4.5 mths.

  • The company has strong product launch cycle for the next 12 months whereby it will launch a Sedan – Ciaz, MUV, LCV and refreshments of existing products

  • Import content was at 16% of total net sales at the end of March 2014 compared to 25-26% in 2011. Majority of these gains are from actual increase in localized sourcing while some gains accrued from favorable currency. Going ahead, the company expects the import content to reach a level of 12-13% of net sales. Further fall would be dependent on sourcing of electronics which would act as a bottleneck.

  • Dealership inventory is currently at 4-5 weeks but the company expects it to see gradual increase as it builds up for the festive season.

  • The company has outlined a capex Rs40bn for FY15 which would be spent towards product launches, R&D and beefing up marketing infrastructure (stockyards and warehouses).

Maintain BUY with a price target of Rs2,950

While macro headwinds will continue to keep the demand growth in H1 FY15 fairly muted, we expect a strong revival from H2 FY15 and even a stronger growth in FY16. MSIL is also set to benefit at operational level from the localization drive and the weak JPY. We raise our domestic volume estimates for FY16. Currency benefits and growth in volumes will enable the company to maintain the current levels of operating margins. Utilization of the cash will be keenly tracked and will have a key bearing on stock price performance in the medium term. Maintain BUY with a revised 9-month price target of Rs2,950.

Financial summary
Y/e 31 Mar (Rs m) FY13 FY14 FY15E FY16E
Revenues 435,879 437,006 485,003 584,741
yoy growth (%) 22.5 0.3 11.0 20.6
Operating profit 42,296 50,959 60,625 75,432
OPM (%) 9.7 11.7 12.5 12.9
Pre-exceptional PAT 23,921 27,831 33,431 44,600
Reported PAT 23,921 27,831 33,431 44,600
yoy growth (%) 46.3 16.3 20.1 33.4
EPS (Rs) 79.2 92.1 110.7 147.6
P/E (x) 31.9 27.4 22.8 17.1
Price/Book (x) 4.1 3.6 3.2 2.7
EV/EBITDA (x) 18.2 15.2 12.3 9.3
Debt/Equity (x) 0.1 0.1 0.1 0.0
RoE (%) 14.2 14.1 14.9 17.2
RoCE (%) 17.2 17.6 18.5 21.5
Source: Company, India Infoline Research
BSE 9,308.05 144.05 (1.57%)
NSE 9,309.10 143.20 (1.56%)

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