Recommendations » India

Maruti Suzuki 3QFY2013 performance highlights and results update

Contributed by Angel Broking

Maruti Suzuki (MSIL) reported strong results for 3QFY2013. While the top-line (up 35% qoq) was broadly in-line with our estimates, the bottom-line was slightly ahead despite the higher tax rate (at 26% as against 19% in 2QFY2013), driven by EBITDA margin expansion of 183bp sequentially to 8%. The margin expansion was led by superior product-mix (higher share of Swift, Dzire and Ertiga and higher proportion of diesel vehicles in the product-mix), lower discounts (at Rs.12,100/unit vs Rs.14,700/unit in 2QFY2013), price hikes and favorable currency movement. Going ahead, we expect MSIL to post a modest volume growth of ~2% in FY2013; however, we expect volumes to rebound in FY2014 and post a growth of 13% driven by availability of additional diesel engines and revival in demand for petrol cars. We also expect operating margins to improve ~140bp in FY2014 led by a favorable product-mix and currency movement, lower discounts and ongoing cost reduction initiatives. Nonetheless, post the sharp run-up in the stock price (up ~18%) over the last three months; the stock appears to be fairly valued. Thus we maintain our Neutral rating on the stock.

Strong results for 3QFY2013: For 3QFY2013, net sales grew by a robust 44.9% yoy (34.9% qoq) to Rs.11,200cr, driven by 25.9% yoy (30.9% qoq) and 15.7% yoy (3.8% qoq) growth in volumes and net average realization respectively. While volume growth came on the back of the low base (volumes in 3QFY2012 and 2QFY2013 were impacted due to labor strike); net average realization improved on account of superior product-mix, lower discounts and price hikes. The share of diesel vehicles stood at ~40% in 3QFY2013 as against ~33% in 2QFY2013. On the operating front, margins improved 183bp sequentially to 8% primarily due to favorable product-mix, operating leverage benefits and favorable currency movement. The royalty expense for the quarter stood at 5.6% as against 6% in 3QFY2012. Led by strong operating performance and base effect, net profit surged 143.8% yoy (120.4% qoq) to Rs.501cr, ahead of our estimates of Rs.474cr.

Outlook and valuation: At Rs.1,600, MSIL is trading at a rich valuation of 16.7x FY2014E earnings. We therefore maintain our Neutral rating on the stock.