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Maruti Suzuki 4QFY2014 performance highlights and results update

April 29, 2014, Tuesday, 10:28 GMT | 05:28 EST | 13:58 IST | 16:28 SGT
Contributed by Angel Broking

Maruti Suzuki (MSIL) posted a lower-than-expected performance for 4QFY2014 as reported EBITDA margins at 10.3% sharply missed our estimates of 12%. The miss on the operating front was on account of one-off expenses like a) compensation given to dealers towards excise duty cuts (~110bp impact on margins) and b) provisioning for full year employee incentives in 4QFY2014 (~60bp impact on margins). Adjusted for the above one-off expenses, EBITDA margins were broadly in-line with our estimates at 11.9%. We marginally revise our FY2015 earnings estimates downwards as we have slightly lowered our margins estimates; our FY2016 estimates however, remain broadly unchanged. We expect the company’s volumes to revive going ahead, led by new launches and gradual recovery in demand after three years of weak performance that the industry has witnessed. We maintain our Accumulate rating on the stock.

One-off expenses impact operating performance: For 4QFY2014, MSIL’s top-line posted an in-line growth of 11.1% qoq to Rs.12,101cr, which was largely driven by 12.7% qoq growth in volumes. Net average realization though declined 1.3% qoq, reflecting a net off (from sales) of Rs.143cr of stock compensation given to dealers to compensate for the excise duty cuts announced in February 2014, and due to an unfavorable product mix. Export revenues for the quarter stood at Rs.1,122cr. On the operating front, the EBITDA margin surprised negatively, as it contracted 213bp qoq to 10.3%, sharply lower than our expectations of 12%. The EBITDA margins were impacted owing to a) compensation to dealers (Rs.143cr) to offset the impact of excise duty cuts which were passed on to the consumers and b) provision for full year employee incentives in 4QFY2014 (Rs.93cr). Additionally, input cost pressures due to increase in commodity costs also had an impact on the margins. Consequently, the reported net profit at Rs.800cr came in sharply below our expectations of Rs.907.

Outlook and valuation: We continue to remain positive on the long-term volume growth potential of the domestic passenger car industry, driven by economic growth and low penetration levels in the country. We expect MSIL to be the primary beneficiary of this structural growth story given its strong brand positioning, expanding portfolio, ability to successfully launch new vehicles and extensive rural/semi-urban network. We retain our Accumulate rating on the stock with a target price of Rs.2,170, valuing the company at 16x FY2016E earnings.