Maruti Suzuki India Ltd (NSE:MARUTI) (BSE:532500)

Maruti Suzuki India Limited is an India-based company engaged in the business of manufacture, purchase and sale of motor vehicles, automobile components and spare parts (automobiles). The other activities of the Company 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, StingRay, Ritz, Swift, DZire, Ertiga, Omni, Eeco, Gypsy, Grand Vitara and Ciaz. The Company’s services include the provision of Finance, Insurance, Maruti Genuine Accessories, Maruti Genuine Parts, Maruti Driving School and Autocard. 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, Maruti Insurance Logistic Limited and Maruti Insurance Broker Limited.

Official website: www.marutisuzuki.com

Results in line with estimates: Maruti Suzuki India Ltd (MSIL)’s 1QFY2016 results have come in in line with our estimates. Its revenues grew 18% yoy to Rs13,425cr, in line with our expectations of Rs13,466cr. Volumes grew 14% yoy while the realization/vehicle grew 4% yoy on account of a better mix. The operating margin improved sharply by 420bp yoy to 16.3% and is in line with our estimate. A favorable currency movement (depreciation of Japanese Yen and Euro vis-a-vis the Indian Rupee) led to lower imported raw material costs. These coupled with decline in discounts boosted the operating margin. On the back of the robust operating performance, the net profit at Rs1,193cr is in line with our estimates of Rs1,228cr. Outlook and valuation: The passenger vehicle (PV) industry is well poised to post double-digit growth over the next two years, given the improved consumer sentiment, better economic outlook and softer fuel prices. Further, MSIL is focusing on larger cars with two new product launches scheduled in the large car segment over the next one year period, which would boost its market share and profitability. Also, we believe MSIL would be able to sustain higher margins (we have built in ~17% margin levels in our estimates for FY2016/17) given the subdued commodity prices and favorable currency rates. Further, reduction in discounts due to improved industry outlook coupled with new product launches and benefits of operating leverage would keep the margins at elevated levels. We view MSIL as the best play on passenger vehicle demand recovery and expect 36% earnings CAGR over FY2015-2017. We have marginally upgraded our earnings estimates due to strong operating performance in 1QFY2016 and sustainability of higher margins going ahead. We retain our Accumulate rating on the stock with a revised price target of Rs4,735 (based on a PE multiple of 21x FY2017 EPS).

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