Maruti Suzuki India Ltd - Research Report

 

Private Client Research

Rating

Buy

Sector

Automobiles - Passenger Cars

Company

Maruti Suzuki India Ltd

Reco Price
Rs. 4950.00
Price Target (1 Year)
Rs. 5934.00
Upside
19.88%

Date

Aug 02, 2016
Sensex
27981.71
CNX Nifty
8622.90

Exchange

Code

NSE
MARUTI
BSE
532500

GST implementation and strong monsoon will drive future growth.

Nexa expansion, aggressive R&D spend to continue:
Maruti Suzuki India Ltd (MSIL) outlined a capex of Rs 4500 crores for FY17 to be funded from internal cash flows. Of this it will invest around Rs 2000 crores for R&D and Rs 1100 crores for expanding its premium car showroom ‘Nexa’. Nexa contributes 10% of MSIL’s revenue now. MSIL recently launched its first small truck for which it incurred a capex of Rs 300 crores. It is committed to two new launches until FY 20. This will take it to its aspiration of a 50% market share from the current 46.2% as of Q1FY17. It is moving steadily into the premium segment with cars of higher ASP and better services, offered through Nexa showrooms.

Strong Player:
MSIL is largest maker of passenger vehicles in India. It has capacity of 1.45m vehicles p.a. with a 95% utilization. Expect market-share gains with new launches. MSIL’s volume sales increased by nearly 30% in last two years supported by due tone models and increasing premium showrooms, filling gaps in the SUV line, and better distribution in rural areas. MSIL has maintained its market leadership despite the increase in competitive intensity. Despite 18 players being in the fray fighting for the 2.6 million large market, MSIL has managed to increase its market share from 42% in FY14 to 47% in FY16. The financial performance has been strong over the past years with operating margins maintained at decent levels. On the business levers side, it is performing well on all factors, ranging from cost of car ownership to demographics to new product launches led by S-Cross, Baleno and Vitara Brezza. However, in the near term, given the capacity constraint and exports expected to be flat, we have estimated volume growth of 10.5%, 13.90% for FY17E, FY18E, respectively.

Structural positives outweigh near term hurdle of capacity constraint:
MSIL has a near term hurdle of capacity constraint as its aggregate production capacity is at 1.45m and the Gujarat plant (to be commissioned in January 2017) will hardly contribute in FY17E (10,000 units in Q4FY17E). However, there are a lot of favorable demand variables for MSIL in terms of macro tailwinds like interest rates, normal monsoon, rural demand (rural sales contribute 35% of MSIL sales) and Seventh Pay Commission impact (MSIL biggest beneficiary as it has highest market share in the first time buyer segment). MSIL will also benefit on the regulation front, as the implementation of GST will result in drop of ASPs (4-5% drop due to lower taxation) for MSIL’s cars. The implementation of proposed emission norms (BS-6) will have the least cost impact on MSIL (2% rise in ASP) due to their highest exposure to small petrol cars. Lastly, MSIL has been aggressive in terms of adding more content in car (airbags/ABS in base models, launching ‘smart hybrids’ variants & automatic transmission option in its models).

Export performance to moderate in near-term:
Suzuki is aiming to let MSIL grow as a low-cost brand to target markets such as Africa. MSIL already contributes 45% to Suzuki’s global profits. As such, Suzuki’s strategy to make MSIL its global export hub for low priced products is logical. Currently, exports form 9% of the total sales for MSIL. Export volumes are expected to be flat in FY17E. The decline in volumes in the Sri Lankan market is expected to be offset by growth in export of Baleno. Going ahead, we have taken 9% CAGR in FY16-18E in export volumes.

Stock Data

CMP (Rs)
4986.05
Face value (Rs)
5
52 Week Range (Rs)
4885.00 - 3193.25
Market cap (Rs Crores)
150133.79
Price To Book Value (x)
6.13
P/E Ratio (x)
31.72
EV/EBIDTA (x)
15.61

One Year indexed Stock Performance

Maruti Suzuki India LtdSensex
Maruti Suzuki India Ltd
Return (%)
1m
6m
12m
36m
Absolute
19.46
28.67
12.63
272.73
Sensex
2.58
14.03
-0.73
46.01

Shareholders

(in %)
30-Jun
Promoter
56.21
Public
43.79
Others
0.00
Total
100

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research@stockaxis.com

 

Industry

The Indian auto industry is one of the largest in the world. The industry accounts for 7.1% of the country's Gross Domestic Product (GDP). As of FY 2014-15, around 31 per cent of small cars sold globally are manufactured in India.

The Two Wheelers segment with 81% market share is the leader of the Indian Automobile market owing to a growing middle class and a young population. Moreover, the growing interest of the companies in exploring the rural markets further aided the growth of the sector. The overall Passenger Vehicle (PV) segment has 13% market share.

India is also a prominent auto exporter and has strong export growth expectations for the near future. In April-January 2016, exports of Commercial Vehicles registered a growth of 18.36% over April-January 2015. In addition, several initiatives by the Government of India and the major automobile players in the Indian market are expected to make India a leader in the Two Wheeler (2W) and Four Wheeler (4W) market in the world by 2020.

Profile

Maruti Suzuki India Limited is an India-based company engaged in the manufacture, purchase and sale of motor vehicles, components and spare parts (automobiles). The company's other activities consist of facilitation of pre-owned car sales, fleet management and car financing. The company's vehicle portfolio includes Alto 800, Alto K10, Wagon R, Celerio, Ritz, Swift, DZire, Ertiga, Omni, Eeco, Gypsy and Ciaz. The company's other services include Maruti Finance, Maruti Insurance, Maruti Genuine Accessories, Maruti Genuine Parts, Maruti Driving School and Maruti Auto card. Its holding company is Suzuki Motor Corporation. The company's subsidiaries include Maruti Insurance Business Agency Limited, Maruti Insurance Distribution Services Limited, True Value Solutions Limited, Maruti Insurance Agency Network Limited, Maruti Insurance Agency Solutions Limited, Maruti Insurance Agency Services Limited and Maruti Insurance Broker Limited.

Profit & Loss Statement:- (Consolidated)
(Rs Crores)
Particulars
Mar-14
Mar-15
Mar-16
Mar-17E
Mar-18E
Income:-
  • Net Sales
  • Growth (%)
  • Total Expenditure
  • EBITDA
  • Margin (%)
  • Other Income
  • Operating Profit
  • Interest
  • PBDT
  • Depreciation
  • Profit Before Tax
  • Provision for Tax
  • Profit After Tax
  • Margin (%)
  • Adjusted EPS
  • 44541.80
  • -
  • 39281.10
  • 5260.70
  • 11.81
  • 773.60
  • 6034.30
  • 184.50
  • 5849.80
  • 2116.00
  • 3733.80
  • 902.20
  • 2831.60
  • 6.36
  • 94.47
  • 50801.40
  • 14.05
  • 44026.40
  • 6775.00
  • 13.34
  • 934.10
  • 7709.10
  • 217.80
  • 7491.30
  • 2515.30
  • 4976.00
  • 1185.40
  • 3790.60
  • 7.46
  • 126.07
  • 58612.00
  • 15.37
  • 49553.40
  • 9058.60
  • 15.46
  • 531.70
  • 9590.30
  • 93.70
  • 9496.60
  • 2867.00
  • 6629.60
  • 1998.70
  • 4630.90
  • 7.90
  • 155.59
  • 65010.00
  • 10.92
  • 53850.00
  • 11160.00
  • 17.17
  • 500.00
  • 11660.00
  • 100.00
  • 11560.00
  • 2968.00
  • 8592.00
  • 2590.327
  • 6001.67
  • 9.23
  • 201.64
  • 74060.50
  • 13.92
  • 61150.00
  • 12910.50
  • 17.43
  • 500.00
  • 13410.50
  • 100.00
  • 13310.50
  • 3550.00
  • 9760.50
  • 2942.608
  • 6817.89
  • 9.21
  • 229.07
Source: Stockaxis Research, Company Data

Valuation

We remain positive on MSIL on expectations of market share gains and good demand growth driving revenues. Healthy product portfolio and the opportunity to reap benefits from recent launches have been well received in the market. We are expecting a pick-up in spending due to good monsoon and 7th pay commission pay which are likely to be key triggers for the company. The Gujarat plant will be commissioned in January 2017 and will contribute in terms of volumes for FY17E (10000 units in Q4FY17E). The plant will see a full ramp up in about six months. At a CMP of Rs 4950, we recommend a “BUY” rating on the stock at 25.90x FY18E with a target price of Rs 5934 two years down the line.

 

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