CMP Rs1,600, Target Rs1,780, Upside 11.3%

• Net sales rise 44.9% yoy driven by a 26% yoy jump in volumes and 17% yoy surge in realizations
• Realizations were higher owing to 1) better product mix with commencement of Ertiga sales, 2) Higher proportion of diesel vehicles in the portfolio and 3) higher export realizations owing to rupee depreciation
• OPM at 8% was better than expectations; OPM was up 274bps yoy mainly on account of benefits of operating leverage and 40bps yoy fall in royalty as a percentage of sales owing to benefits of favorable currency
• Other income increased 8% yoy, which was offset by 450bps yoy rise in effective tax rate
• Maintain BUY with a revised 9-month target price to Rs1,780

Result table

(Rs m)	Q3 FY13	Q3 FY12	% yoy	Q2 FY13	% qoq
Volumes	301,453	239,528	25.9	230,376	30.9
Realisation (Rs/unit)	410,070	350,135	17.1	397,757	3.1
Net sales	112,003	77,316	44.9	83,054	34.9
Material costs	(82,173)	(57,477)	43.0	(61,174)	34.3
Purchases	(5,668)	(3,665)	54.7	(4,936)	14.8
Personnel costs	(2,412)	(2,090)	15.4	(2,352)	2.6
Other overheads	(12,837)	(10,052)	27.7	(9,507)	35.0
Operating profit	8,913	4,032	121.0	5,085	75.3
OPM (%)	8.0	5.2	274bps	6.1	183bps
Depreciation	(3,583)	(2,989)	19.9	(3,470)	3.3
Interest	(459)	(176)	161.1	(380)	20.8
Other income	1,886	1,746	8.0	1,563	20.7
PBT	6,756	2,613	158.6	2,798	141.5
Tax	(1,743)	(557)	213.1	(524)	232.9
Effective tax rate (%)	25.8	21.3	450bps	18.7	709bps
Reported PAT	5,013	2,056	143.8	2,274	120.4
PAT margin (%)	4.5	2.7	182bps	2.7	174bps
Ann. EPS (Rs)	69.4	28.5	143.8	31.5	120.4

Source: Company, India Infoline Research

Net sales rise 45% yoy driven by strong growth in volumes and realizations
During Q3 FY13, Maruti Suzuki India Ltd (MSIL) reported net sales growth of 44.9% yoy driven by 25.9% yoy jump in volumes. Realizations were also higher by 17.1% yoy. Domestic volumes were higher by 27% on yoy basis, while export volumes jumped 17% yoy. At the industry level, volume growth has been led by the diesel variants as the price differential between cost per km of petrol variant and diesel variant (even after diesel price hike) continues to remain high. With revival in production at Manesar plant, MSIL leveraged on this trend and registered an industry beating volume growth. Better realizations were on the back of price hikes implemented during the year and also owing to a favorable product mix (higher proportion of diesel variants and inclusion of Ertiga). Export realizations were also higher by 20% yoy on the back of rupee depreciation and export of Ertiga CKD kits (not included in export volumes).

Total volume breakup marketwise

	Volumes			Contribution (%)
	Q3 FY13	Q3 FY12	yoy (%)	Q3 FY13	Q3 FY12
Domestic	268,957	211,803	27.0	89.2	88.4
Exports	32,496	27,725	17.2	10.8	11.6
Total	301,453	239,528	25.9	100.0	100.0

Source: Company, India Infoline Research

OPM better than expectation owing to benefits of operating leverage and favorable currency
During Q3 FY13, OPM for MSIL rose by 274bps yoy and 183bps qoq. Margins at 8% were better than our expectations. On a yoy basis, while operating profit per vehicle was higher by 75.6%, gross profit per vehicle was higher by 18.7%, indicating that the rise in OPM was on account of benefits of operating leverage. Lower other expenditure was driven by impact of strength in rupee towards the end of quarter on royalty payments (40bps as a percentage of sales) and decline in selling and distribution expenses. On a sequential basis, operating profit per vehicle and gross profit per vehicle surged by 33.9% and 9% respectively. Raw material costs also were lower by 97bps yoy owing to lower commodity prices and favorable currency movements.

Better operating performance resulted in 144% yoy PAT growth
As compared to a 121% yoy increase in operating profit, PAT surged by 144% yoy to Rs5,013mn (higher than our expectations). Depreciation jumped 30% yoy due to capitalization of Plant-B at Manesar plant, while other income rose 9% yoy. Effective tax rate was unexpectedly higher by 450bps yoy at 25.8%.

Cost analysis

	Q3 FY13	Q3 FY12	bps yoy	Q2 FY13	bps qoq
Material costs	73.4	74.3	(97)	73.7	(29)
Purchases	5.1	4.7	32	5.9	(88)
Personnel Costs	2.2	2.7	(55)	2.8	(68)
Other overheads	11.5	13.0	(154)	11.4	1
Total costs	92.0	94.8	(274)	93.9	(183)

Source: Company, India Infoline Research

Maintain BUY
While macro headwinds will keep the demand growth in Q4 FY13 and H1 FY14 at muted levels, interest rate cuts and improvement in consumer sentiment will improve demand in H2 FY14 and FY15. MSIL with a robust product profile of both diesel and petrol variants will be a key beneficiary of the trend. Overall we expect MSIL to report 5.7% volume growth in FY14 and 15% in FY15. The company is also in process of improving its exports. MSIL will also gain from improvement in margins as benefits of operating leverage creep in. We maintain our BUY recommendation with a revised 9-month price target of Rs1,780.

Financial summary

Y/e 31 Mar (Rs m)	FY12	FY13E	FY14E	FY15E
Revenues	355,871	422,328	469,473	568,947
yoy growth (%)	(3.9)	18.7	11.2	21.2
Operating profit	25,129	31,220	42,813	55,187
OPM (%)	7.1	7.4	9.1	9.7
Reported PAT	16,352	18,275	25,746	34,382
yoy growth (%)	(28.6)	11.8	40.9	33.5